By Andrew Jay Rosenbaum
ANKARA
In a volatile year for the global economy, Turkey held its own.
World trade is down to a record low and global economic growth is expected to reach only 2.5 percent by year end, according to a report by Morgan Stanley released on Sunday. China is struggling to maintain growth, the report said, European recovery is slow, and the U.S. is improving more slowly than expected, according to the report.
“Many countries, both developed and emerging markets, have seen difficult times in the past year,” wrote Mark Burgess, an analyst at Columbia Threadneedle Investments, in a note published on Oct. 15.
Through all this, the Turkish economy surprised economists with a better than expected performance.
Back on Feb. 6, the International Monetary Fund forecast 3.4 percent growth for the Turkish economy in 2015.
“But the Turkish economy is likely to have grown at a rate close to 4.7 percent this year,” Bora Tamer Yilmaz, an economist with Ziraat Securities in Istanbul, said in a note released Monday.
In fact, Turkey has surprised analysts this year with better than expected performance in most areas of the economy.
The Turkish lira has performed better than most emerging-market currencies. In September, the lira fell to below 3 to the dollar, on worries that a projected Federal Reserve interest rate hike would cause a massive outflow of funds from emerging markets.
But, when the rate rise came on Dec. 16, the Turkish lira held at about 2.94 to the U.S. currency, and has since risen up as far as about 2.90 Monday.
The Brazilian real lost 31.8 percent against the dollar this year, and the Russian ruble has dropped almost 50 percent.
“Turkish economic growth has been driven by continued strength in consumer spending,” commented Timothy Ash, credit strategist with investment bank Nomura in London in a note on Dec. 23.
Business activity accelerates
Economic growth was helped by accelerated business activity in Turkey this year.
For example, mergers and acquisitions showed healthy improvement in 2015, according to statistics from the Pragma consultancy reported on Dec. 3.
Volume of Turkish mergers and acquisitions was at $4.3 billion during the first eight months of 2015, according to the report, with 124 transactions. High-tech and retail were the main sectors seeing such activity.
Major deals included Dubai-based private equity firm Abraaj taking a 25 percent stake in Turkish online retailer Hepsiburada on Feb. 22. Another major deal was Germany’s Delivery Hero acquiring Turkey’s largest Internet food delivery company Yemeksepeti on May 5.
Manufacturing activity also came back from a slow start at the beginning of the year. The Turkish Purchasing Managers index was close to, or above 50 in the last six months of the year – readings above 50 indicated burgeoning activity.
Further, Turks earned more this year. Hourly wages have increased about 30 percent from 2014, according to statistics from the Organization of Economic Co-operation and Development released in September 2015. Average per-capita income is close to $20,000 per year, according to government statistics.
Consumption drives Turkish growth
As Turks earn more, they spend more.
Household demand makes up about two-thirds of Turkish Gross Domestic Product, and it has grown year-on-year at about 4 percent in 2015, according to data from the Turkish Statistical Institute.
Consumer confidence has remained strong, despite a long period of political uncertainty with two parliamentary elections in the year. The Consumer Confidence Index held at above 60 points for most of 2015, and then jumped to 77.15 in November -- after the Justice and Development (AK) Party won a majority in parliament after the election on Nov. 1 -- from 62.8 in October, and remained above 70 points in December.
Inflation has stabilized at an annual rate of between 7 to 8 percent, according to the Turkish central bank in its most recent inflation report on Oct. 28. Food prices stayed high for most of the year, and were the principal driver of inflation, according to the bank. But they began falling back in November and December, the report said.
Low oil prices, with the commodity falling to an 11-year low on Dec. 21, have helped reduce inflation and increase consumption in Turkey.
“We see durability in the Turkish economy still with good growth drivers, a pickup in exports to the EU, a cheap currency, sound public finances and banks, and favorable demographics, all helped by low oil and commodity prices,” Ash commented.
Low oil has helped the current account deficit to narrow. The 10-month current account deficit narrowed by 25 percent year-on-year to $25.4 billion.
The central bank forecast in a December 2015 note that Turkey’s exports would become an increasingly important growth driver in the coming year. Exports are down about 30 percent in value from 2014, largely due to the low value of the euro – Europe is Turkey’s largest export market. But export volume actually increased, suggesting that demand has not changed.
As the European economy continues its slow recovery, demand for Turkish exports is expected to increase, according to central bank’s inflation report. And the government has announced plans for investment in Turkish exporters to help them increase quality and technological content.
The deal to limit Iran’s nuclear program, struck between major powers and the country on July 14, is expected to offer Turkey with a large new export market as sanctions are gradually lifted. The Turkey-Iran Business Council said at the time that the $13.7 billion volume of trade with Iran in 2014 could climb to $30 billion in two years.
European recovery lags
Turkish performance stands out among the relatively sluggish growth seen in Europe.
Dogged by the Greek bailout crisis, which severely threatened the European system, and the refugee crisis, Europe’s performance was ragged this year.
Growth will only be slightly more than 1 percent, according to the European Central Bank, despite the massive stimulus program made by the bank which injects €60 billion into the eurozone economy every month.
Exports flagged, across the EU, with only 1.6 percent growth in the second quarter. Even Germany, the region’s export motor, saw weak growth throughout the year, with a precipitous plunge in exports of 5.8 percent in August.
Inflation is still near-zero in the EU, and the European Central Bank’s stimulus program has thus far done little to push it higher.
China debacle
Europe and other economies around the world have been badly hurt by the slowdown in China in 2015.
On Aug. 10, China began a series of devaluations of the renminbi which raised fears that China’s economy was in far worse shape than expected.
While the Chinese government is trying to rebalance the country’s economy to consumer spending and away from exports, growth has slowed drastically to an official 7 percent this year, but which many economists say is really closer to 5 percent.
Chinese imports fell 8.7 percent in dollar terms in November compared with a year earlier, after a 12.6 percent drop in October, according to government statistics.
Exports for November fell 6.8 percent year-on-year, after a 5 percent fall in October.
“The problem is that China’s recent economic rise has been facilitated by a massive and unsustainable stimulus campaign,” Morgan Stanley analysts wrote. “No emerging nation has ever tacked on debt at such a furious pace as China has done since 2008, and a rapid increase in debt is the single most reliable predictor of future economic slowdowns and financial crises.”
U.S. recovery disappoints
Some economists have said that slow growth in China will be balanced by more rapid growth in the U.S., but the U.S. recovery has been disappointing.
Employment has come back strongly, with the unemployment rate falling from 5.8 percent in January to 5 percent at the end of the year, according to Labor Department statistics.
With the addition of about 200,000 jobs each month, total non-farm employment reached 142.9 million in December. So far this year, employment has grown by 2.3 million jobs from the 140.6 million jobs in December 2014.
But wage growth has remained flat, stubbornly stuck at around a 2 percent annualized rate for the past five years.
Inflation has also remained at a stubbornly low rate of less than 1 percent throughout 2015.
The Outlook
Economists now see the most robust outlook for emerging markets.
“Emerging markets have several things going for them,” Morgan Stanley analysts wrote.
“One is that more people are entering the workforce, which means that production is being driven by people who are at the right ages to be productive. Secondly, there’s less debt or encumbrance on both corporate and personal balance sheets in emerging markets. Lastly, multinationals from emerging countries are better able to compete than developed-market multinationals,” the report said.
What’s more, emerging-market corporates are seeing improved earnings.
For the first time in nine years, consensus forecasts show that emerging-market corporates’ earnings-per-share growth (12.2 percent) will lead both U.S. and Europe, Australasia and Far East in 2016, Morgan Stanley said.
