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Turkey Continues to Exceed Expectations Due to Government Incentives

Posted on Jun 30 2012 by spotblue

While the economies of the major countries in the world are still slowing, Turkey continues to defy the odds with a growing economy. It is ideally placed geographically as it is at the intersection of the Middle East, Europe and Asia, and it has exploited this to the full, managing to strengthen ties with a number of countries while still maintaining its NATO membership.

Last year its economy grew at nearly 10%, and Turkey lowered its trade deficit and had its sovereign debt upgraded by Moody’s. Sovereign debt is now just 42% of the GDP which is the lowest level in Europe after Russia, the Czech Republic and Sweden. Last year when the trade deficit went above 10%, the Turkish bank was quick to act introducing a two tier interest rate system designed to discourage the flow of hot money.

At the same time the government acted to introduce new trade incentives allowing foreign manufacturers like Renault to export more cars into Turkey on the condition they increased their local output. Car manufacturers increasing annual output by 100,000 units can import vehicles equalling 15% of that amount without incurring tariffs.

If a car manufacturer chooses to open a new engine manufacturing plant then they are able to import an extra 30% of foreign made cars. Similar incentives have been offered in other industries such as steel making and the chemical industry. Although GDP is expected to slow to around 5% this year, this growth looks to be sustainable. However there is a growing need for more educated workers within Turkey, and this shortage of skilled labour could eventually drive up wages and inflation.

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