Turkey's economy is well on the way to erasing memories of recession, posting solid growth from late 2009 onwards, though recent woes in neighbouring Greece and beyond will have many in Ankara casting a wary sidelong glance towards the West.
Having contracted by 4.7% in 2009, Turkey's economy has been on the rebound since the final quarter of last year, growth being spurred by a strong surge in export sales and climbing consumer demand at home. The government of Prime Minister Recep Tayyip Erdogan is predicting a 3.5% rise in GDP for 2010, yet some ministers are increasingly suggesting this will be at the lower end of the economy's possible performance.
In early April, Deputy Prime Minister Ali Babacan, who also serves as state minister for the economy, told local media that the growth target set by the government was conservative and would probably be revised upwards in June, when the cabinet next meets to rejig its medium-term economic plan.
This sense of optimism is shared by a number of international organisations and agencies. In late April, the IMF raised its projections for the Turkish economy, forecasting an increase of 5.2% for the year. By the end of the month, Deloitte went further, predicting GDP to expand 5.7-6%.
While inflation is edging up, and could finish the year close to 10% according to Central Bank estimates, this is in part a result of rising domestic demand and is seen as a sign the economy is gearing itself up for further expansion. The reserve bank has deliberately chosen not to target inflation at the moment, keeping interest rates at an historic low of 6.5% for the past six months in an effort to stimulate lending to help reboot the economy.
Though many of Turkey's domestic economic indicators are good, there are still suggestions of a possible cooling off, most likely due to external factors.
The main factor in any possible change is the debt crisis in Europe, which could spread from Greece westward to Portugal and Spain, potentially destabilising the eurozone. Ali Babacan has sought to play down reports the debt crisis will have a major impact on his country.
"An economic slowdown in the eurozone may affect our exports as one might argue the demand in the EU will go down," he said on May 8.
Even though Turkey has relatively limited trade with Greece – exports totalled just €1.88bn last year – the EU as a whole accounts for some 50% of Turkish exports. Some of its main trading partners, such as Germany, are at the forefront of efforts to bail out the Greek economy. There is the risk that by funding the multibillion-euro rescue package being provided to Athens, other eurozone economies could be denied the funds needed to continue their own recoveries.
Another hint that the Turkish economy is not guaranteed a smooth ride comes from a report by the Turkish Automotive Manufacturers' Association, issued in May, which shows that while output from the sector was up nearly 21% in April, month-to-month production has slipped by 8.5% from April to May.
The automotive sector is one of the key indicators of the country's economy, the industry being the largest manufacturing exporter in Turkey. Last year, at the height of the recession, many of Turkey's leading automotive producers put the breaks on their assembly lines, laying off staff or putting them on unpaid leave as orders from Europe dried up. While April's fall in production could be a one-off, should Europe slip into recession again, the resurgence of Turkey's automotive sector could run out of gas.
The Turkish economy is far more resilient to external shocks than ever before, a result of reforms implemented over the past decade. These reforms, including a major restructuring of the banking sector in the wake of a series of bank collapses in 2001, mean Turkey has moved out of recession far faster than many of its neighbours and should be less prone to fall back into the red.