Economist Arzu Karaarslan/ Mardin
The Turkish economy continues its soft landing during 2014. The following chartscompare Turkey’s economic performance with OECD averages between 2008 and 2016.
There are many factors that have contributed to Turkey’s soft landing. Political uncertainty in the region, large current account deficits, decreased domestic demand, the EU’s economic struggle andvolatility risks associated with capital flows all caused the GDP growth to lose momentum in 2014. Expectations are that the soft landing will continue at least through 2016 with predicted growth for 2015 being 3.2% and for 2016 being slightly better at 4%.
Despite this low growth, the economy still has managed to create new jobs. However this job creation did not prevent the unemployment increase of 10% in 2014.The Turkish unemployment rate is above the OECD average and is expected to be above the OECD average next two years as well.
During this period, the central government has taken an austerity approach to the fiscal policy. This fiscal tightening has occurred despite the upcoming elections in March 2015.
Inflation in 2014 was 9%, 4 percentage points above the Central Bank’s target. The failure to attain this target has weakened the credibility of monetary policy. In order to restore the credibility of the Central Bank realistic targets must be set by the Bank.
On the positive side, declining oil prices as well as depreciation of the Turkish Lira have improved export opportunities. Yet the effects of them predicted to be limited due to the EU’s demand and political uncertainty in the region.
Structural reforms which are also stated in the National Development Plan 2014-2018 remain essential for the economy to overcome current account deficits and maintain robust GDP growth.