I am not going to do a blow-by-blow summary of Turkey’s current macro position except to note that the “collapsing demand led growth forcing a declining GDP, rising unemployment, dramatic monetary loosening, fiscal stimulus, falling inflation, improving external account but only because of falling-imports-exceeding-falling-exports combo” has all the hallmarks of Spanish or a UK-style recession. This gives away Turkey’s back-to-front economic structure for a developing economy trying to take-off by putting the consumption cart before the production horse. Even more so however, not having many natural resources, this combo marks Turkey out for being a passenger car like many other countries in Eastern Europe and the Baltic States. Above all, Turkey reminds me of Mexico (and, perhaps surprisingly) the gone astray coal truck of South Africa.
Turkey must be on guard. It’s export profile of TVs, washing machines, electric fans and air-conditioners – even if bolstered by preferential tariff access to the EU – is an economy built on sand. Already it must be losing out to China; before long it will have the likes of Vietnam and Indonesia to contend with. Mexico – which gave us the term ‘maquiladora’ – is every day being disintermediated in the white goods supply chain now increasingly rooted in the low labour-cost economies of Asia. Turkey’s wage differential – 5 times greater than China? – suggests they could also be heading down Mexico way. And – as is also the case with Mexican labour in the US – Turkish workers are less welcome in a barely growing Europe, thus undermining another big source of export earnings: remittances.
So what is Turkey to do? Even at the risk of upsetting its more secular, pro-EU community, Turkey must rediscover its Eastern identity and boost its trading links into the oil-rich countries on its Eastern borders, both the Middle East to the South East , the Caucuses to the North East and perhaps the Stans beyond. Even Russia and Ukraine across the Black Sea could offer opportunities to hitch Turkey’s external growth drivers to basins that are growing faster than the likely mediocre 2% the EU will offer for the foreseeable future.
Otherwise Turkey risks getting stuck in Europe’s slow lane. And I would hate to see that fate – ‘kismet’ as the Turks call it – befall a country which has as much promise as does Turkey.
Which outcome do I predict? The optimistic one that involves looking East for higher growth. Why? Because when it comes to seeing and exploiting new commercial opportunities, you cannot keep a good Turkish entrepreneur down.