Key takeaway – Over the next five years, Turkey’s growth is expected to decline from 5.1 (10-year average) to 3.9 percent, still a solid performance when compared to most peers. Inflation and policy rates are expected to remain elevated, at around 6 and 8 percent, respectively. The USDTRY is likely to depreciate, from 2.1 to 2.4. Declining global liquidity, a complex and non-fully-independent monetary policy, low growth in the EU and the middle-income trap are major economic risks.
A. Economics: lower but less-volatile growth, higher inflation and interest rates, depreciating TRY.
During the past 10 years, GDP grew by 5.1 percent on average, driven by consumption and investments. Over the past decade, the key driver of economic performance was ‘household consumption’ – which accounted for about 70 percent of GDP and on average contributed 3.1 percent to growth. ‘Investment’ accounted for 23 percent of GDP and added an additional 1.7 percent. While ‘exports’ accounted for 25 and ‘imports’ for 28 percent of GDP, ‘net exports’ was a drag to growth, contributing -0.2 percent. Similarly, ‘government’ spending accounted for 10 percent of GDP but its contribution was negligible, at 0.5 percent on average (Figure 1).
Figure 1 - Consumption drives growth, followed by investments
Turkey – Contribution to GDP by expenditure (%)
Source: Turkstat, 2014.
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