Turkey′s economy: No more boom time | Business| Economy and finance news from a German perspective | DW | 22.12.2014
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Turkey's economy: No more boom time

In the last few years, Turkey has been celebrating its booming economy. But recent numbers paint a more sober picture. Experts say the government has failed to implement reforms. Thomas Seifert reports from Istanbul.

Third-quarter growth of 1.7 percent and a 2.8 percent expansion rate for the first nine months of the year would have many European countries in rapture, but in Turkey, these recent numbers have met with disappointment, as they came in far below market expectations.

The Turkish government had forecast 3.3 percent growth for 2014, down from an initial 4 percent. Both numbers look increasingly unrealistic.

And it is not just growth that's lackluster, unemployment has also risen to a seasonally adjusted 10.7 percent in September - the highest rate in four years. Youth unemployment stands at an even higher rate of 20 percent.

Turkish consumers seem to have less disposable income now - car sales dropped by a hefty 19 percent in the first nine months of the year, compared with the same period the previous year.

Homemade problems

In part, Turkey's problems are caused by international events, such as the US central bank's policy of reducing its bond-buying program, which is having an effect on emerging economies worldwide. Betting on rising interest rates in the US, investors are taking their money out of Turkey to invest it across the pond.

Turkey's economic boom was in large part driven by foreign investors. If they pull out, it could have dire consequences for the country.

Experts, however, believe that many of Turkey's problems are homemade. Turkish businesses have invested a lot less in machinery and equipment recently, Hanife Cetin from Ankara-based think tank Türksam told DW. It's a problem for Turkey, as it needs a robust manufacturing sector and more investment in research and development, according to Cetin.

Calls for structural reforms

The International Monetary Fund (IMF) has just warned Turkey to implement structural reforms to reduce its dependence on foreign investors.

Turkey failed to kickstart reforms after 2008 when ample funds from abroad boosted the economy and there would have been room for maneuver, according to columnist Ugur Gürses in Turkish online newspaper Radikal.

Gürses also lists political turbulence, allegations of corruption against members of the government and the recent arrests of journalists as negative factors affecting the economy. They have all contributed to the Turkish lira losing ground against major currencies, say analysts.

Cetin believes that investors could remain wary of Turkey in the long run. Lower oil prices and higher state spending ahead of the parliamentary elections next year may boost the economy, but the effect will be short-lived. She predicts Turkey will have to grapple with high inflation, high unemployment and "economic fragility" for some time.

Education is key

Turkey needs a new growth model, says Emre Deliveli, economics columnist for Turkish daily Hürriyet. He told DW that he believes Turkey needs to shift from relying on domestic demand to an export-led economy with a focus on advanced technology.

Deliveli says Turkey has so far not managed to transform manufacturing from making cars, for example, to making more high-tech products. For that to happen, Turkey must reform its education system to boost research and development, the expert stresses.

The government has promised changes, but very little has happened, says Deliveli. And he doesn't expect that to change significantly before the elections in mid-2015.

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