Though the Turkish economy slid into recession, in part due to the steep decline in overseas trade and a falling off in domestic demand, there was no financial collapse as occurred during the downturn of 2001, with the banking sector not only surviving but prospering and the stock market riding a wave of growing activity.
That said, Turkey remains in negative territory and unlike some of Europe's other big economies, such as Germany and France, it may take a bit longer to move out of recession, with many experts predicting a return to growth in the second half of the year.
While final year-end results have yet to be released, most indications show that the Turkish economy will have contracted by around 6.5% in 2009, after a 1% increase the year before. Though a marked retreat, an improved regulatory environment, swift interventions by the Central Bank and some measures applied by the state helped to avoid the worst-case scenario.
The increasing resilience of the Turkish economy was reflected in a decision by ratings agency Moody's early in the new year to upgrade the country's rating and outlook from Ba3 to Ba2, and from stable to positive, respectively. According to the agency, the upgrade was based on the increased confidence in Turkey's ability to absorb shocks, access to funding and negate the effects of recession.
The strong performance of public finances compared to previous economic crises was notable, said Moody's analyst Sarah Carlson on January 8.
"The ability of the government and the country more generally to regroup when faced with a very significant economic and financial challenge indicates that Turkey has reached a higher level of resiliency, which is what our ratings ultimately reflect," she said.
Turkey's stock market was not just resilient but positively buoyant, with the Istanbul Stock Exchange's main share index bouncing back from losses in the second half of 2008 to post a 97% increase on the year.
The country's banking sector also had a stellar year, cashing in on the Central Bank's monthly interest rate cuts with net profits for Turkey's banks rising by 44% to $12.6bn in the 11 months ending November, while their combined assets climbed by 11.5% to $544bn. However, Turkey's lenders did not pass on the reserve's rate reductions, with the bank's loan activity increasing by a far more modest 4%, with just $260bn disbursed.
Though Turkey saw the brakes put on its export trade, with overseas sales needing a late surge in December to push them through the $100bn mark, the overall performance was better than forecast earlier in the year, when some analysts were predicting a top-range figure of below $90bn. The climb in exports was in part driven by some of Turkey's major trading partners, notably those in Europe, moving out of recession in the latter months of 2009. Imports were also down for the year, coming in at just under $140bn, equivalent to approximately 30% fall due in part to lower oil prices and weakened consumer demand.
There are some causes for concern heading into 2010, one of which is increasing inflationary pressures, with year-end consumer inflation coming in at 6.5%, with wholesale prices rising by 5.9%. Though well down on the 10% increase recorded by the consumer price index in 2008 and the 8.1% for producer prices, many analysts had expected a better performance. With inflation hitting a 10-month high in December and the government hiking costs on a number of core goods and services at the beginning of 2010, the outlook is for prices to trend upwards throughout the year.
The rise in inflation late in the year prompted the Central Bank's monetary policy committee to end its monthly round of interest rate cuts, the reserve keeping its key borrowing rate at 6.5% at its December 17 meeting. This followed 13 reductions over the previous 12 months that saw the bank's rate fall from 16.75% to historically low levels.
Though inflation has eased and the economy appears to be moving out of recession, unemployment has remained stubbornly high, defying state-backed efforts to promote job creation and preserve existing positions. Despite providing tax breaks for both the automotive sector and the white goods segment, aimed at stimulating sales and propping up two of Turkey's key sectors, the government was unable to plug the hole draining away jobs. By late in the year, the unemployment rate had risen to 13.4%, up from the 11% of 2008, with the best hopes for a turnaround being a major increase in activity in the manufacturing sector.
Throughout the year, the economy managed to shrug off concerns swirling around alleged coup plots by retired military officers, calls for early elections and ongoing low-level terrorist activity, mainly in the country's south-east. In years past, such issues could have caused ripples in the economy, though it seemed that in 2009, Turkey had matured somewhat and was better placed to ride out both domestic and international storms.