Turkey’s economy is booming despite dark shadow of volatility

Attacks, war and a boycott by Russia have failed to curb trade, consumption and growth

Despite a wave of suicide attacks, the war in neighbouring Syria and ongoing clashes with Kurdish separatists, Turkey’s economy is today one of the fastest-growing in the G20 group of states.

Security in Turkey has deteriorated dramatically in recent months. Multiple bombings in Istanbul, Ankara and the southeast have killed hundreds of civilians. Last Saturday, the US embassy in Ankara issued an alert for "credible threats", warning its citizens to stay away from tourist areas and ferry terminals in Istanbul and Antalya, a major tourist hub on the Mediterranean coast.

On top of this, the fallout following Turkey’s shooting-down of a Russian jet on the Syrian border last November means a Moscow-imposed ban on Russians travelling to Turkey – since partially lifted – and on joint construction projects will cost Turkey’s economy billions more this year.

Russia has also stopped buying Turkish fruit, vegetables and poultry, and a proposed €10 billion gas pipeline across the Black Sea was cancelled by Russia in December.


Yet Turks are spending, regardless.

Data from the Turkish Statistical Institute released on March 31st found that only China and India outpaced Turkey’s 4 per cent growth among G20 countries last year. Despite a return to war with Kurdish separatists in July, household consumption rose 4.7 per cent with eating out, and the buying of household appliances and homes leading the economy’s charge.

Reflecting these figures, Moody’s last Friday maintained Turkey’s “Baa3” rating, citing its “economic resilience and strong fiscal metrics”.

Arab investments

In spite of the worrying security situation here, Arab tourists continue to see Turkey as a safer destination for property investments than the Middle East. The depressed price of oil also means Turkey, almost entirely dependent on imports for energy, had to fork out €30 billion less for energy bills last year, much of which was used to heat the country this past winter.

According to Tim Ash, a leading emerging markets expert at Nomura Holdings, a host of factors have helped the economy stay afloat in the medium term.

“I think there is an underlying durability in the Turkish economy related to favourable demographics, strong banks, strong public finances and an entrepreneurial pro-business culture. Turkey has also perhaps benefited from migrant flows,” he said.

“Three million Syrian refugees are supposed to be in Turkey – 500,000 are in camps, where are the rest? Well they are renting or buying apartments, trading, working, consuming. And this is reflected in the net $10 billion [€8.7 billion net errors and omissions on the balance of payments last year.”

Job creation

Observers say that despite President Recep Tayyip Erdogan’s abrasive style and crackdown on free speech, he remains popular with the majority of Turks, precisely because his governments have delivered economic results. In the past six years alone the AK Party that Erdogan co-founded in 2001 has overseen the creation of about six million jobs, allowing huge numbers of people easier access to consumer goods and housing.

In the Moda district of Kadikoy, a largely residential neighbourhood on Istanbul’s Anatolian side, where the number of bars, restaurants and cafes has explode over the past 18 months, twentysomethings arrive in their thousands at the weekends.

"Moda is one of the few places in Anatolian Istanbul where people with a secular point of view can gather and walk by the sea," said Semih Selcuk, a former Istanbul-based tour guide for Italian- and English-speakers. "In the last three, four years, Moda has become very popular with local Turks."

His Hugs and Mugs cafe opened last Saturday and sells cappuccinos and smoothies for €2.78 and €3.40 respectively. He says that he spent between €90,000 and €95,000 revamping the space and kitting out the cafe, and his monthly rent is €1,700. “It’s a big risk but my market here is local Turks, not foreigners; I’m hoping our own people – locals – will come and be our customers.”

Selcuk blames the Turkish government’s foreign policy errors for leading to a situation where he says European tourists are now afraid of travelling to Turkey.

“I’m not very positive about the future of the economy; Turkey is doing these investments with other people’s money. If it were ours, it would be great, but it’s not,” he said.

For antiques dealer Recep Gun, who sells high-end Bauhaus, Jim Thompson and Scandinavian retro design work out of his space – called Art Depo – close by, the big spenders who can afford his wares are still very much present.

“There’s a demand for good-quality pieces here [in Moda] and from my Istanbul customers in general,” he said. “When I opened three years ago, people were buying regular designer furniture; today, customers are interested in the high-class material.”

Ash says that job creation, and a trickle-down effect to ordinary Turks have motivated household spending. “Plus the positive impacts from immigration” have fuelled the economy, he said. “Four per cent of the population, in terms of the Syrian migrants.”