Macroeconomic Analysis of Turkey - Example

Researching and analyzing macroeconomic data of the of the Table of Contents Introduction 3 Demographic Profile of Turkey 3 Macroeconomic analysis of Turkey 5 Suggestions 8 Conclusion 9 References 10 Introduction In the world map, Middle East is a region that encompasses majority of western Asia and Egypt. There are approximately 24 countries in this region, including Turkey. Modern Turkey gained its independence in the year 1923 from the Anatolian remnants of the defeated Ottoman Empire by national hero Mustafa Kemal; he was later honored as “Ataturk” or “Father of the Turks”. Turkey became a member of United Nation in 1945 and joined NATO in 1952. Since 1964, it became an associate member of the European Community. In 1974, Turkey had military intervention on Cyprus to prevent a Greek invasion and since then it is a patron state to the “Turkish Republic of Northern Cyprus”, that only turkey recognizes (CIA, 2014). The European Union granted membership to Turkey in 1999 even though it is strongly opposed by France, Germany and Austria (CIA, 2014). Until then, the country went through a volatile phase in terms of economic growth and financial performance (Görmez & Yiğit, 2009). Turkey is a secular constitution but the Justice and Development Party of its Prime Minister Recep Tayyip Erdogan has been giving preference to Islamic agenda and eroding the country’s Euro-Atlantic connections. Turkey suffered large-scale protests in early 2013 and in the same year air defense units were deployed by NATO on the southern border of Turkey as concerns were raised by Syria’s Civil War (The Heritage Foundation, 2014). In last one decade, Turkey has implemented several human reforms to strengthen its demography and economy. The following segment comprises a concise explanation about various demographic factors associated with the country. Subsequently, relevant macroeconomic factors of Turkish economy have been discussed along with facts and comparative data. Following that, suggestions and recommendations have been provided which will prove helpful to the economy. Demographic Profile of Turkey The demographic profile of Turkey consists of population density, education level, sex ratio, economic status, religions and other aspects of the population. The capital of Turkey is Ankara and Istanbul is its largest city by population (BBC News, 2014). As per the World Population Review (2014), the current population of Turkey is 76,070,852 and has increased from the estimate of 2013 of 75,503,136. It comprises 1.05% of world’s total population. The male population is around 49.9% whereas the female population is almost 50.1% of the total population. It has been estimated that the population continues to grow at a constant rate with 3600 birth per day, while death rate is as low as 1224 deaths per day. The country’s population density is 98 people per square kilometer; the population mainly consists of Turkish people, which is about 75% of total population strength while Kurdish form 18% and other ethnic groups form 17% of the total population (World Population Review, 2014). Figure.1: Population trend of Turkey, 1970-2012 (Source: World Bank, 2014) A number of languages are spoken in Turkey considering the fact that there are so many ethnic groups such as Turks, Kurds, Pontians, Arabs and Armenians are residing in the country (BBC News, 2014). The official language is Turkish and is spoken by approximately 84% of the population; 11% speaks Kurdish and rest consist of other minor ethnic languages. Islam is the main religion, followed by 99.8% of population while 0.2% of population follows other religions (World Population Review, 2014). According to UN data (2014), average annual population growth rate for 2010-2015 is 1.1%; while the growth rate for urban population is 2.4%, the rural population shows a negative growth rate of -2.3%. The life expectancy of Turkish Population is 72 years for males and 77 years for female. The sex ratio is 99.5 male per 100 female (UN data, 2014). As per the World Population Review (2014), in 1960 the population of Turkey was 28.16 million people and it stood at 63.63 million in 2000 and in 2014, it is more than 76 million. The same source reveals that the life expectancy has grown from an average of 48.27 years to 73.94 years in 2011; this statistics suggests that life expectancy has shown a steep slope in recent years. The literacy rate of Turkey is fairly high- about 87%, as per World Population Review (2014); 95% male are literate in the country, while around 79% women are literate. The currency of the Republic of Turkey is Turkish Lira (TRY).The government spends around 2.9% of its Gross Domestic Product on education. The ratio of female to male in primary and secondary education is 88.8/93.5 in 2006-2012 as per the UN data (2014). Macroeconomic analysis of Turkey Macro economy implies the analysis of major economic factors that affect the economic system as a whole, rather than an individual or an individual firm; it is primarily concerned with forecasting of national income but the other major macro economic factors include level of employment/ unemployment, balance of payment, government expenditure, saving and investment. Gross Domestic Product: Turkey, being located between the continent of Europe and Asia, enjoys a strategically important position acting as a great influence in that region as well as has the control of the black sea entrance. The Turkish economy is very dynamic and steadily growing. The major industries in Turkey are based on textile, agriculture, food processing, automobiles, metals (iron and steel), fuels and oil (BBC News, 2014). A major part of Turkey’s export comprises textile, automobile and electronic products (Nathanson & Brand, 2011). According to the author, it is expected that in next one decade, besides India and china, Turkey will grow quicker than other countries keeping in view its rapid growth rates and growing population. Turkey’s GDP value of $786 billion makes it 18th largest economy in the world. Besides that, it is also one of the largest partners of the World Bank from the group of all the Middle-Income countries. The economic growth in Turkey has faces several turbulent situations in past few decades. Historically, the country has suffered serious turmoil in its economy once in every decade. The report also says that in 1994 Turkish economy faced its worst recession due unrestricted public spending (Nathanson & Brand, 2011). However, in three years the economy was growing by more than 8 percent (OECD, 2010). In 1998, Asian and Russian financial crunches led to another slowdown followed by two major earthquakes in 1999. In 200-01 due to liquidation crises, the nation suffered heavily resulted in public debt worth 74% of GDP and Assistance was asked from IMF (Nathanson & Brand, 2011). As per the World Bank (2014), Turkey has made considerable growth in past decade and the financial reforms post 2001 crisis have made its financial sector quite strong. FIgure.2: GDP trend of Turkey 2003-2013 (Source: UN, 2012) According to the data (graph) provided by UN (2014), even during the financial crisis worldwide in 2010, the Turkish economy performed considerably well with 9% GDP which grew to 7.5% in 2011; moreover, the average GDP from 2003-13 was 4.8%. It is also expected that by 2050 the Turkish economy will be place among top three economies in Europe. Figures provided by CIA data relevant to GDP composition of Turkey (by end user)- Household consumption: 71% Government consumption: 15.4% Investment in fixed capital: 19.4% Investment in inventories: 0% Exports of goods and services: 26.6% Imports of goods and services: -32.5% (CIA, 2014). Unemployment rate: Apart from GDP, an important macro-economic indicator is the rate of unemployment. Despite the high growth rates and improvement in the economic scenario of Turkey, the employment rate of Turkey has always been quite low. According to OECD (2014), only 48% of Turkish people have a paid job whereas the average of OECD is 66%. The rate of unemployment of Turkey was 9.8% for the year 2011 which has declined from 11.9% in 2010 (UN data, 2014). Balance of Payment: The import and export transactions of any country are represented in terms of Balance of payment. Balance of payment is defined as a summary or a systematic record of all the economic transactions that took place in a nation within a given period of time, usually a year. A favorable balance of payment is when the number of export transactions is higher than the number of import transactions and an unfavorable balance of payment is when the number of import transactions is higher than the number of export transactions. The export of the Turkey for the year 2011 was US$ 134915.3 million, whereas the export was US$ 240838.6 million; that results to US$ (105923.6) million of deficit balance (Economy Watch, n.d.). Investment pattern: Economic development of a country is often highly influenced by Foreign Direct Investment. FDI flow play an important role in a nation’s economy, it has a favorable impact on the Balance of Payment as well. Initially in 2002 Turkey attracted a very USD 15 billion as FDI but in last one decade the amount is equivalent to USD 130 billion. The outward investment made by Turkish investors in 2011 was USD 2.3 billion which grew to USD 4.1 billion in 2012 having a growth rate of 78% (Ministry of Economy, Turkey, 2013). Government Expenditure: government expenditure is described as the money that government collects from the public and spends. It is also known as public spending. The various expenditures met by the public spending are creation and maintenance of public utilities, funding military activities, education and many more. The Government expenditure of Turkey for 2013 as a percentage of GDP was 37.785%; it was 36.115% for the year 2012 and 34.857% for the year 2011 (Economy Watch, n.d.). Exchange rate: The current value of Turkish lira is 2.1375 per USD (Exchange Rates UK, 2012). Although last year, the value of Turkish lira dropped to record low but the value of pound hit lowest against Turkish lira in April 2014 and lira earned huge gain among other currencies which can be treated as a result of election victory for Prime Minister Recep Tayyip Erdogan’s party. Suggestions The study of Turkey’s macroeconomic indicators shows that the nation has suffered from frequent economic turbulence. However, over time it has recovered quite well. The increasing growth rates show that it has the potential to stabilize its economic condition in a better manner but the Balance of Payment data of turkey’s past few years show that it has high accumulated deficit balance (net export is less than net import). Turkey’s high deficit raises a question about its competitiveness; the other reasons of the deficit include poor trade structure and heavy reliance of imported energy (fuel and fuel oil). The export industries and domestic manufacturing industries of Turkey are highly dependent on import hence, it is impossible for Turkey to rely on its export to pay-off the deficit. So as suggestion, it can be said that turkey need to find a way out to reduce its dependency on the import or should export those products more that are less dependent on the import. The statistical data related to employment in Turkey represents a critical situation, which requires an immediate reform. It is quite worrisome that even less than half of the population has a paid job. Facts say that the major reason behind an unorganized employment sector is Turkey’s labor market. It channelizes the major working population in the informal employment sector that results in high work hours, low productivity and payment. Data suggests that the literacy rate of the country is high; however, the quality of its formal education is not fairly good. Therefore, to improve the situation of unemployment the government must undertake measures to improve the quality of formal education imparted in the country and ensure a better well organized high quality formal employment sector created. Conclusion To draw conclusion on the economic condition of the Republic of Turkey, it can be said that the country is provided with resource with potential yet it is unable to exploit those resources but Turkey has the strength to bounce back keeping in view that it suffered several financial and economic disturbances and yet survived. The location of the nation, the young and growing population, the well-structured financial segment and its involvement with World Bank can prove advantageous only if Turkey make efforts to sort out its minor issues like BOP deficit, heavy dependency on imported product and unemployment situation. References BBC News. (2014). Turkey profile. Retrieved from http://www.bbc.com/news/world-europe-17992009 CIA. (2014). Middle East:: Turkey. Retrieved from https://www.cia.gov/library/publications/the-world-factbook/geos/tu.html Economy watch. (No date). General government total expenditure (% of GDP) Data for All Countries. Retrieved from http://www.economywatch.com/economic-statistics/economic-indicators/General_Government_Total_Expenditure_Percentage_GDP/ Exchange Rates UK. (2012). Turkish Lira Exchange Rate. Retrieved from http://www.exchangerates.org.uk/Turkish-Lira-TRY-currency-table.html Görmez, Y. & Yiğit, S. (2009). The Economic and Financial Stability in Turkey: A Historical Perspective. Retrieved from http://www.nbs.rs/export/sites/default/internet/latinica/90/SEEMHNkonferencija/SEEMHN_15_Turska.pdf http://www.worldbank.org/en/country/turkey/overview Ministry of Economy, Republic of Turkey. (2013). Foreign direct investments in Turkey2012. Retrieved from http://www.economy.gov.tr/upload/63B4C188-DF09-586B-4C6963B55AE3607E/FDI_2012.pdf Nathanson, R. & Brand, G. (2011). Economic Overview of Turkey. Retrieved from http://www.macro.org.il/lib/3031793.pdf OECD. (2010). OECD economic surveys: Turkey. Retrieved from http://www.oecd.org/economy/surveys/45951718.pdf OECD. (2014). Turkey. Retrieved from http://www.oecdbetterlifeindex.org/countries/turkey/ The Heritage Foundation. (2014). Turkey. Retrieved from http://www.heritage.org/index/country/turkey UN data. (2014). Turkey. Retrieved from http://data.un.org/CountryProfile.aspx?crName=TURKEY UN. (2012). Annex tables. Retrieved from http://www.un.org/en/development/desa/policy/wesp/wesp_archive/2012annex_tables.pdf World Bank. (2014). Turkey. Retrieved from http://www.worldbank.org/en/country/turkey/overview World Population Review. (2014). Turkey population 2014. Retrieved from http://worldpopulationreview.com/countries/turkey-population/ Read More