World Economy

2015 was a ‘lost year’ for Turkey: Economist

This was a 'lost year' for Turkey: Economist
This was a 'lost year' for Turkey: Economist

The past 12 months marked a "lost year" for Turkey, which would have experienced stronger economic growth had it not been for deteriorating geopolitical relations, an economist has told CNBC.

Unicredit's Chief Economist for Central and Eastern Europe Lubomir Mitov believes Turkey should have "benefitted tremendously" from the situation in Europe — where the central bank boosted asset purchases to buoy the economy — as well as low oil prices. However, internal political strife and geopolitics helped offset those gains, he explained.

"This was a lost year for Turkey," Mitov told CNBC Wednesday.

"Turkey is underperforming (and) has been underperforming for the full's even underperforming after the elections. If you look at the markets, Turkey is probably 3 to 4 percent weaker than it should have been after the elections, but for these geopolitical problems," Mitov said.

Turkey's BIST 100 Index is down 13.4 percent year-to-date, while the dollar has gained nearly 25 percent on the country's lira over the past 12 months.

Speaking before a meeting with Jordan's King Abdullah, Russian President Vladimir Putin called Turkey's downing of a Russian fighter jet "a stab in the back" carried out by the accomplices of terrorists, saying the incident would have serious consequences for Moscow's relations with Ankara.
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Peter Toogood, an investment director at City Financial Investment Company Limited, also argued that a lack of structural reforms are keeping Turkey from feeling the full benefits of economic boons like low oil prices.

"They're the flagship for everything that's wrong in emerging markets, they have wasted the opportunity. They've undertaken massive government spending, they've massively increased nominal wages...if there's an example of how to lose productivity advantage, they've been it," he said.

"The lira continues to decline, it has had no meaningful impact … the oil price has come down, (and) it should be the absolute example of a beneficiary, and it hasn't been."

Burning bridges

Though the previous government made efforts to maintain positive relations with neighboring states Mitov says that Turkey now has "almost no neighbors left," having sparked rows with Iraq, Syria, and Egypt.

Heightened tensions with Russia have also thrown a spanner in the works, he said, with Moscow clamping down on agricultural imports, setting stringent visa limits, and restricting tourism to Turkey. This coming after the military shot down a Russian fighter jet on the Syrian border on November 24, killing one of the two pilots on board.

Russia also announced Wednesday that it would ban Turkish companies from participating in state tourism, construction and hotel services starting January 1, according to Reuters.

Turkish President Recep Tayyip Erdogan delivers a speech in Ankara, Turkey on December 3, 2015.
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Forecasts from the European Bank for Reconstruction and Development suggest the row with Russia could shave 0.4 percent off Turkish growth rates if sanctions are fully implemented throughout the next year.

Mitov said money from Europe — with about $3.4 billion being transferred to Turkey as part of plans to stem the flow of migrants into the EU — will help offset the pain from Russian sanctions. But he added that Turkey still isn't performing as strongly as it should be. Turkish officials have downgraded gross domestic product estimates for the year to 2.5 percent, from previous forecasts of 4 percent.

"(This) is very low for a country of the size of Turkey," Mitov said.