Our Analytics 7 february — 16:42

West about desirable, Erdogan about valid (Our analysis)



Recently, the world media have been writing more and more about the imminent crisis of the Turkish economy and the country's national currency - the lira. But on the eve, Turkish President Tayyip Erdogan said that the republic's authorities are planning new major investments and projects that will place the country in the top 10 leading economies in the world. According to him, Turkey alone implements more than half of the megaprojects being implemented in the world today. Is this an optimistic forecast or a warning for external players?

The Turkish economy, already in the top 20 leading economies in the world, is indeed seeing positive changes. Suffice it to say that against the backdrop of a slowdown in world trade and a slowdown in the global economy, Turkey managed to maintain positive GDP rates in 2020. In the last month of 2020 alone, the country has achieved record indicators in the field of exports. And a recent forecast by the international rating agency Fitch Ratings notes that the start of vaccination against coronavirus infection (COVID-19) and the relaxation of quarantine restrictions will accelerate the growth of the Turkish economy. Moreover, this will happen closer to the second half of the year. In general, Fitch predicts the growth of the Turkish economy in 2021 by 3.5%, which at the end of last year is estimated at slightly above 0%.

Erdogan strives hard for breakthrough in Turkish economy

And President Erdogan previously announced that the Turkish government would soon unveil a new package of economic and legislative reforms aimed at creating the preconditions for another leap in the country's development. According to him, some of the measures that Ankara took in 2020 and which led to a reduction in the state budget will be maintained in the first quarter of 2021, depending on the situation with the pandemic, and partially until the end of the first half of the year. And the country's authorities continue to take comprehensive and effective steps to reduce inflation. The government's goal is to prevent budget deficits above 3.5% of GDP in 2021. Ankara, on the one hand, will actively pursue fiscal policy, and on the other, implement measures to reduce the budget deficit.

The Turkish authorities strive to ensure that the country's economy achieves a long-term, sustainable and high-quality growth structure. Erdogan is pushing hard for economic breakthroughs, hoping to become an important player in the changing global value chain. And these are not empty words: at the end of last year, the country's share in world exports exceeded 1% for the first time. The number of companies set up in Turkey in 2020 increased by 20%, despite the pandemic, and exceeded 101 thousand. And Turkish companies, as you know, compare favourably with their competitors in product quality, competitive prices and, above all, in their reliability. Undoubtedly, government support will only increase their effectiveness.

Fitch predicts 3.5% growth for Turkey in 2021

In recent years, the importance of the country's defence industry has also grown, which does not depend on external supplies. If in 2002 Turkey was one of the countries largely dependent on arms exports, today the country covers its needs through domestic production. The goal is to eliminate any dependence on external supplies in critical technological areas of defence, which, as recent events show, is of strategic importance. In recent years, more than 700 defence projects with a total volume of $60 billion have been implemented in Turkey. And by 2023, Ankara intends to bring the annual turnover in the military-industrial complex to $27 billion, and the volume of arms exports to $10 billion. And this is natural - in the last five years alone, funding for defence projects has increased 11 times.

As for the Turkish lira, economists praise the return of the central bank to tight monetary policy. Indeed, the discount rate of the Central Bank at the last meeting was kept at the same level - 17%. And the investment bank Goldman Sachs has changed its forecasts in connection with the USD/TRY exchange rate and believes that the lira will rise in price, but it may be limited. The bank's analysts believe that the lira is one of the currencies showing the best performance against the dollar in emerging markets since early 2021. And since its record fall on Nov. 6, the lira is up more than 14%, with the USD/TRY ratio of 7.41.

Over 700 defence projects totalling $60 billion have been implemented in Turkey in recent years

In general, this year the Turkish currency has outstripped all its peers in emerging markets, with the exception of the Chinese yuan, after the country's central bank raised rates to 17% from 10.25% since November and promised to fight double-digit inflation. Some foreign investors have already returned to Turkish assets. And the new head of the Central Bank, Naci Agbal, confirmed his commitment to maintaining a tight monetary policy, even if more frontal steps are required. According to his forecasts, inflation, which rose to 14.6% in December, will fall to 9.4% this year. And such a tough policy will be carried out until inflation drops to the target level of 5%, which will not happen until 2023. This is how the goal is, and the time frame when it will be achieved. All that remains is to wait for the results.

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