Turkey’s economy up 11%, but growth brings risk (Al Monitor, Feb.28 2022)
Turkey’s economy grew 11% in 2021, driven by domestic demand, exports and tourism, official data showed Monday. But the flashy rate has been marred by high inflation and appears hard to sustain.
Along with the dangerous surge in inflation, which has hit an annual of nearly 50%, casting a big shadow of uncertainty over the economy, an array of downsides stands out on the other side of the coin. Ignoring the sharp depreciation of the Turkish lira and the resulting inflation risks, Ankara has followed a growth-focused policy, motivated mainly by political concerns ahead of elections next year. It may have achieved a double-digit growth rate, but consumer and entrepreneur confidence has declined, and income distribution and employment indicators offer little to cheer about. The fragile environment in which the economy expanded has been marked also by fleeing foreign investors and a high-running country risk.
The high pace of growth is hardly sustainable this year, given the high inflation and accumulated risks. Coming atop is the crisis over Russia’s invasion of Ukraine, which is already dealing fresh blows on the Turkish economy. A growing number of pundits forecast that economic growth will be limited to something between 1% and 2% in 2022.
While most developed and emerging economies contracted in 2020 amid the havoc wreaked by the COVID-19 pandemic, the Turkish economy grew 1.8%, thanks largely to a cheap loan bonanza. The momentum picked up in 2021, with gross domestic product (GDP) growing 7.3% in the first quarter; a whopping 21.9% in the second quarter, which owed much to a strong base effect from the downturn in same period the previous year; 7.5% in the third quarter and 9.1% in the fourth quarter.
Standing out is a 16.6% value-added increase in the industry as well as a 21% expansion in the services sector, which had all but imploded in the early stages of the pandemic. Yet two other key branches of the economy contracted. The agricultural sector shrank 2.2% under the impact of drought among other adversities, and the construction sector — on a continued decline in the past three years — contracted by nearly 1%.