Turkey is a remarkable growth story, and one which is still in its early stages. Over the last two years it has been ranked among the fastest-growing economies in the world. With more than half the population below the age of 29, there is plenty of growth to come. Turkey is already the 18th largest economy in the world, and our Global Research analysts expect it to rise to 12th by 2050.
This is a great achievement for a country that is still building a modern infrastructure, in a region – at the crossroads of the Balkans, the Middle East and the Caucasus – which faces many challenges.
Turkey's economic success has not happened by accident. It has been driven by a commitment to free markets, a sustained campaign to modernise, and a welcoming climate for foreign investment. Fiscal discipline and a well-regulated banking and financial system have helped the country to weather the global financial crisis.
The growth pattern has not been even – part of the recent surge is a bounce back from weakness in 2009. With the eurozone as its largest trading partner, Turkey is not immune to external factors. Our Research team expects GDP growth to slow in 2012, partly due to weaker exports to the eurozone, a trend evident in the first half of the year.
But total exports rose by an impressive 13.7 per cent in the first nine months of 2012 compared to the previous year, and Turkey's GDP growth continues to outstrip that of the eurozone by some distance. That may bring a wry smile to the faces of Turkish diplomats who have negotiated, unsuccessfully so far, for entry to the European Union.
Turkey's strategic location between East and West makes trade a key driver of its expansion. This is one of the areas where HSBC is investing heavily to support the country's development.
Economic growth compared
GDP per cent growth
Source: HSBC Global Economics, Q3 2012; Turkey's Growth Outlook, 12 September 2012
The Turkish economy has evolved far beyond the traditional sectors of textile, clothing and agriculture. The automotive, building and electronics industries have grown in importance. The Baku-Tbilisi-Ceyhan oil pipeline was launched in 2006 and is pumping up to one million barrels a day from the Caspian to world markets. Several pipeline projects are planned to transport Central Asian gas to Turkey and beyond. Leading multinationals, including Intel, Ericsson and Shell, have made substantial investments in the country. Foreign direct investment inflows in 2011 reached USD15.9 billion.
Turkey faces many challenges both externally, where it has borders with Syria, Iraq and Iran, and internally, with a population of 75 million and millions of young people entering the workforce.
GDP growth for the first half of 2012 was 3.1 per cent year-on-year. HSBC's analysts expect growth of 2.7 per cent for the year as a whole, which would still be a 'soft landing'.
Inflation remains high. Monetary conditions have been eased significantly in recent months. The current account deficit is relatively high at 10 per cent of GDP for 2011, but strong export growth should narrow it this year.
Turkey has managed its problems astutely and continues to deliver economic growth that outstrips the developed world. We expect growth to average 4.5 per cent a year between 2011 and 2014.
The country's progress has been recognised by credit rating agencies. In June, Moody’s promoted Turkey to one level below investment grade, citing a significant improvement in its public finances. It said Turkey could move up to investment grade if it reduces its current account deficit, its central bank increases foreign reserves and private sector external borrowing falls. In November, Fitch Ratings upgraded Turkey to investment grade, citing its growth prospects, falling public debt burden and sound banking system.
Economic success has also brought an air of confidence among its growing numbers of well-educated young people. Turkey has the seventh largest number of Facebook users in the world*. Its geographical and trading position gives it the building blocks to become an important financial centre, though this is likely to take some time.
HSBC has expanded rapidly in Turkey and expects further growth. We now have 331 branches, more than 3.5 million retail and 220,000 corporate customers, and near 6,000 employees. We operate in 63 cities. The branch network has doubled since 2006, and lending and credit card operations are expanding. We have been a pioneer in helping Turkish companies raise finance from alternative sources, such as the Middle East. We have facilitated inward capital flows, and advised Diageo on the USD2.1 billion acquisition of spirits company Mey Icki. We have set a core goal of being Turkey's leading international bank.
Turkey has established an enviable track record in the last decade. Yet as a bridge between Europe and Asia, backed by a strong domestic economy, a young and diverse population, increasing affluence and entrepreneurial talent, and a solid fiscal and regulatory framework, its success story is only beginning. It is a story in which we at HSBC aim to play our full part.
*At 18 October 2012