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How healthy is the Turkish economy really?

, June 21, 2017, 0 Comments

turkey-economy-marketexpress-inDespite ongoing political crisis, Turkey’s own statistical authority has given its economy good marks. German businesses are rejoicing, but experts remain skeptical.

The Turkish economy grew five percent in the first quarter of the year. This was announced by the state’s statistical authority Turkstat in June. But is the Turkish economy really on the up? Gareth Jenkins has his doubts. The expert on Turkey from the Institute for Security and Development Policy in Istanbul has lived in the country since the end of the 1980s. He has witnessed many political and economic ups and downs.

“Last year, the Turkish statistical institute abruptly changed the way economic data was measured, and suddenly the Turkish economy was much better off than all the analysts and experts had believed. We still do not understand how Turkstat calculated these statistics.”

The Turkish branch of the German Chambers of Commerce (AHK), an industry association, has its headquarters in a smartly renovated old building on the Bosporus. It’s painted white, has a large garden and a view of the Bosporus. Managing Director Jan Nöther can’t complain. Maybe it’s because of where he works. In a conversation with DW, Nöther sees the economic situation of the country in a positive light.

“The change in sentiment generated by the positive first quarter is welcome. Economic growth in the first quarter of 2017 was supported in particular by a significant increase in exports, state-supported infrastructure and other projects and domestic consumption.”

How differently statistics can be evaluated. Though Jenkins also sees an increase in consumption, the development expert thinks this trend is a flash in the pan.

“The government has seized on a whole series of short-term measures, such as guarantees for bank loans, which, of course, support short-term consumption. At the same time short-term measures will have a very negative effect in the medium term, for example, when people cannot repay their loans.”

Foreign investment crucial for the economy

The last point also brings wrinkles of concern to Ege Yazgan’s face. A man in his mid-50s, he teaches economics at the Bilgi University, one of the most famous private universities in Turkey. “There is an incredibly low savings rate in Turkey, as well as huge investment gaps,” he explained.

But most of all he is worried about the bad image of the country, especially in Europe. The continent is “the most important export market for Turkish products and has a prominent place as a financial market place for Turkey, since Turkey is urgently dependent on foreign direct investment.”

And it is exactly this investment capital that has stayed away since last year. Through the coup attempt last summer, the mass arrest of journalists and people from the opposition, and those accused of being behind the putsch, the political situation seems too volatile for many foreign companies.

“The few foreign investors are concerned about democracy and human rights, but they are very concerned about economic stability and the rule of law, especially because they want to make sure their money is safe. The good years are gone and will not come back for a long time,” says Jenkins.

Where all this is leading no one knows

Not everyone sees it that way. At the AHK office in Istanbul, Jan Nöther comes to a completely different conclusion.

Especially when considering the economic relations between Germany and Turkey he sees no negative consequences from the unstable political situation: “For many decades, there has been a close relationship between the German and Turkish economies, and in this regard the political situation plays a subordinate role.” According to Nöther, German businesses are therefore “optimistic about the future and expect this positive trend to stabilize over the course of the year.”

Others beside Jenkins and Nöther also disagree on where the Turkish economy is headed. While the World Bank has just revised its prognosis upwards for economic growth, Moody’s has issued a damning report on the country. For months the rating agency has been listing the creditworthiness of Turkey as junk.