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Economic growth slowed significantly in Turkey in 2014 and stood at just 2.9%. The average economic growth of the past 10 years was 4.7% and was very dynamic. The decline was mainly due to subdued domestic demand as well as recent credit restrictive measures of the government. This tendency has continued in the first months of 2015; as economic growth in the 1st quarter 2015 was 2.3% (expectation: 3%). Both the annual budget deficit of 1.4% of GDP and the total debt ratio of 33% of GDP are significantly below the Maastricht threshold.
The economic downturn is further added to by the chronically high current account deficit, which was 5.7% of GDP in 2014. But this does not change the basic high dependence of the Turkish industry on imported energy and raw materials. Furthermore, the very low savings rate in an international comparison (2014: 12.6% of GDP) makes it difficult to separate financing of this deficit, which is why Turkey is highly dependent on foreign capital inflows to balance its current account. However, the Turkish government is planning various measures and reforms to reduce its high current account deficit. These includes the reduction in their dependence on energy imports by increasing the use of renewable energy sources and the construction of two nuclear power plants. As well as the promotion of Turkish exports and strengthening of the country’s industrial sector.
In 2014, Turkish exports rose by almost 4% to 158 billion USD, while imports decreased by 3.7% to 242 billion USD over the same period last year. The trade deficit thus decreased by around 15% and amounted to 84 billion USD. The main reason for the imbalance in foreign trade is the high dependence on import of energy, raw materials and semi-finished goods for industrial production, which accounted for a total of approximately 75% of total merchandise imports in the year 2014.
Looking at the economic structure, industry (textiles, cars, chemicals, machinery, electrical industry) contributes around 25% to national GDP. The services sector brings in the largest share to the GDP, at 60 percent. Agriculture contributes 10% but employs more than one-third of the Turkish workforce.
Among macroeconomic indicators, inflation stood at 9.3% at the start of 2015, owing to the continued depreciation of the Turkish Lira. The average unemployment rate in July 2015 was 9.5%. The interest on 10-year government bonds is currently around 9.9%.
Why invest in Turkey?
- Turkey exists at the confluence of Europe and Asia, which automatically makes its location of strategic importance. In addition, it is proximate to the Middle East and North Africa as well, thus allowing for the shortest possible export routes to these markets from Europe.
- Turkey has a highly developed infrastructure in major economic areas of the country. However, infrastructural development lags behind in eastern and southeastern regions.
- Turkey has reduced its corporate tax from 33% to just 20% in recent years.
- Turkey has a very large and well-developed domestic market that is in constant demand for high quality goods and services.
- Turkey’s workforce is available at relatively cheaper rates than most other European countries but it as skilled in most facets, if not all.