Commentary, Economy

Global slowdown, Turkey’s divergence and the G20

Turkey’s presidency of the G20 in 2015 presents a golden opportunity to bring crucial development issues to the global governance agenda and stimulate dynamism of its national economy by forming new diplomatic and commercial linkages.

Following a plethora of stimulus packages and false dawns in emerging markets and developing countries spurred by abundant liquidity pumped in after the global financial crisis, the world economy seems to be succumbing into a new era of slowdowns and lackluster growth. Despite the gradual recovery in the U.S. economy supported by a general improvement in the outlook and widening use of shale gas resources, the developing world is beginning to run out of steam as global demand conditions deteriorate by the day. China seems far away from the glorious days of double digit growth, India is struggling with falling consumption, Russia is under stress due to falling oil prices and Brazil is feeling the political implications of the economic impasse.

These BRICS countries are joined by developing economies in Eastern Europe, Latin America and East Asia in their common sensations of economic slowdown. Things are not getting any better for Continental Europe where financial stimulus programs that worked relatively well for the U.S. and the U.K. failed to bring about dynamism close to pre-crisis levels. While conflicts of interest between the core E.U. economies and those in Southern Europe became more pronounced, even the core countries led by Germany are starting to experience a slowdown. Japan’s mixed performance is also creating serious concerns. The erosion in cheap international financing options is a concern for everyone as major investors are returning to their safe heavens on the eve of interest rate hikes by the Federal Reserve.

Alongside narrowing financial conditions, downward risks include geopolitical risks in Syria, Iraq, Ukraine and Libya despite which oil prices continue to drop in view of low global demand. Central Banks and economic bureaucracies in Europe and emerging economies are working overtime to stimulate growth while preserving the value of their currencies against the dollar.

Against this gloomy backdrop, Turkey’s recent economic performance continues to display a moderate but positive divergence from similar developing economies. The current account deficit, frequently cited as a crucial risk factor, is shrinking from $65 billion (TL 147 billion) to $47 billion and given the weak oil prices it is bound to stabilize around 5.5 percent of GDP. Economic growth rate around 3.3 percent, though not exactly satisfactory in view of Turkey’s development needs, seems totally acceptable under the bleak global conditions. The fact that Turkey managed to decrease its current account deficit in the presence of moderate economic growth indicates that there will be no “hard-landing,” recession or crisis when the Federal Reserve starts to raise interest rates. The most important remaining item on the policy agenda is inflation, which hovers around 9.4 percent, with the impact of food prices, but after a series of structural reforms it is expected to stabilize around 7.5 percent to 8 percent. As stated in the Medium Term Economic Program, the main priority of structural reforms should be controlling inflation and increasing the knowledge and value added content of the productive sectors.

The period of slow global growth could be a good time to realize long-awaited structural reforms and upgrade industrial and technological infrastructure. Similar to China’s efforts following the crisis, public investments could be directed to the creation of necessary infrastructure for research and development expansion and supporting intermediary goods production to reduce import dependency. Key sectors such as petro-chemicals, high quality stainless steel, consumer electronics components and medical equipment will benefit greatly from initiatives aimed at medium to high and high value added production.

In this context, Turkey’s presidency of the G20 in 2015 presents a golden opportunity to bring crucial development issues to the global governance agenda and stimulate dynamism of its national economy by forming new diplomatic and commercial linkages. In our part, a collective and concerted effort by political, bureaucratic, entrepreneurial and intellectual actors will be required to make the best use of this opportunity in the coming months.

Resource: Daily Sabah, 18 October 2014


Sadik Unay completed his B.A. in Politics and International Relations at Bogazici University. He continued with his M.A. and Ph.D. studies at Manchester University. He is currently a faculty member at Istanbul University, Economics department.