2008 Year In Review


Economic News

22 Jul 2010
Text size +-
Politically and economically, Turkey had a frustrating year in 2008, with the government's reform programme losing pace as a result of fighting a court battle to avoid removal from office, just as the effects of the global economic crisis began to set in.

In the biggest news story of the year, the country saw a senior prosecutor apply to the Constitutional Court in March to have the ruling Justice and Development Party (AKP) closed for allegedly seeking to undermine the country's secular regime.

On July 30, the court ruled, by the barest margin, not to close the party or to ban 70 of its leading members, including Prime Minister Recep Tayyip Erdogan. The decision ended months of tension and uncertainty. However, the lost time in which much of the government's attention, and that of the markets, was focused on the court case could not be recovered, with the second half of the year seeing a general slowing of the economy.

Such is the extent of the current economic downturn that in November the administration announced it intended to apply to the International Monetary Fund (IMF) for a support package, with media reports saying the government would seek a new standby agreement worth $20-$25bn. However, as the year drew to a close, no final agreement had been reached.

In late November, the government announced it was preparing a package of measures to ease the effect of the economic slowdown and stimulate growth. The steps included guaranteeing bank deposits of up to 50,000 YTL, providing credit to small and medium size businesses and lowering some taxes. Again, as with the IMF deal, details of most of the proposals in the package had not been finalised as of late December.

According to figures released by the state's statistics bureau in early December, Turkey's industrial output fell by 8.5% in October, the third month in a row production recorded negative growth, while in November the number of industrial plants in use dropped by a record 9.7% to just 72.9%, compared to the same month in 2007.

There could be an upside for Turkey from the global crisis. Inflation, which in November was running at an annual rate of 10.76% for consumer prices and 12.25% for wholesale, is expected to fall in the coming year as demand for both domestic and imported goods declines.

On December 11, Kursad Tuzmen, Turkey's state minister for foreign trade, said exports this year would reach an originally projected $125bn, though he predicted this figure would contract by around 17% in 2009. Additionally, the minister said imports would decline by $50bn next year due to lower energy and commodities prices, having totalled $205-210bn in 2008.

The expected drop in exports is already making itself apparent. In November, exports fell by 22% year-on-year, with the important textiles sector seeing overseas sales drop by 26.15%. Turkey's automotive sector also felt the chill winds of the international downturn, with a number of leading marques either reducing output or halting production for extended periods late in the year. Leading producer Ford Otosan reported a 31% drop in net profits for the third quarter, while other manufacturers also saw earnings plunge.

Most of Turkey's automotive capacity is geared for export, mainly to the eurozone. With much of Europe slipping into recession during the last quarter of 2008, exports slumped, falling by 37.9% year-on-year in November. Domestically, too, the industry is in trouble, with car sales down by 35% in October compared to the same month in 2007, in part due to a lack of credit finance.

The Istanbul Stock Exchange (ISE) has also had a rollercoaster of a year, though since August the ride has been mainly downhill. Having opened the year above 55,000 points, the ISE's National 100 Index slid to around 35,000 in early July, before rallying strongly to peak above 40,000 points in August, in part as a result of the Constitutional Court's ruling in favour of the AKP. From that time onwards, the index has mainly been in retreat due to concerns over falling production, tighter credit and lower medium term prospects for the economy. Towards the end of 2008, the National 100 was hovering at around 24,000 points, well under half its level when the year began.

Looking ahead, the nationwide municipal elections scheduled for the end of March could have a major impact on the economy. Though Erdogan's government had vowed to avoid populist policies and increased spending ahead of the polls, many political analysts are expecting to see boosted funding allocations and investments in key regions such as the southeast, where the AKP hopes to shore up its support.

The lead up to the March municipal elections could also see an increase in political unrest, violence and protests, which could shake confidence in the economy. In December, there were at least three bomb attacks targeting local AKP branch offices, while there are concerns that the ruling party's efforts to wrest control of major municipalities in the southeast from the pro-Kurdish Democratic Society Party (DTP) could result in a bitterly contested campaign.

In any case, Turkey can probably look forward to a year of belt tightening in 2009, with the Organisation for Economic Cooperation and Development (OECD) predicting 1.6% growth for the Turkish economy next year, well down on the 7% rate averaged over the past five years. Though the OECD did project a higher growth rate of 4.25% in 2010, that prediction is dependent on the recovery of the global economy. For Turkey, wealth at home will rely on economic health abroad and the government's ability to manage the crisis.

Covid-19 Economic Impact Assessments

Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.

Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.

Register Here×

Product successfully added to shopping cart

Read Next:

In Turkey

After a landmark 2021, what does this year hold for ESG-focused sukuk?

Earlier this month Saudi Arabia’s Riyad Bank closed a $750m “sustainability” sukuk (Islamic bond), the latest in a wave of high-profile issuance across different regions. ESG-related...


Can grid expansion keep pace with the coming surge in solar power...

As the capacity to generate wind and solar power continues to expand around the world, hopes of accelerating the phase-out of coal as the leading source of electricity may depend on the expansion...