Growing Opportunities Behind Turkey’s Soft Landing

Turkey Economy

Turkey is on a clear slowdown trajectory. Both the consumer and the business sectors are seeing a gradual deceleration of growth, and GDP expanded by only 3.2% in Q1 2012, compared with last year’s annual growth of 8.5%. We expect Turkey’s slowdown to continue through the end of the year as the eurozone crisis continues to depress export demand while high inflation, a weakening currency, and more expensive consumer credit undermine consumer demand.

However, this slowdown should not lead multinationals to consider Turkey a declining opportunity. In fact, now is a critical time for companies to invest in positioning themselves for the post-crisis opportunity in the market.

While Turkey is slowing, it is still weathering the eurozone crisis better than most of Central and Eastern Europe. With strong demographic fundamentals, growing investment, a diversified economy, and increasing importance as a regional hub, Turkey offers long-term opportunity that promises a relatively fast recovery once the eurozone crisis is back on a path of growth.

More importantly, we’re seeing growing investor interest in the market. Cash-rich multinationals, many of them European, are taking advantage of the weak lira to make cheaper investments in setting up or expanding their local presence, including through local manufacturing. A reflection of this trend was healthy growth in FDI at US$6.5 billion in the first five months of 2012.

Turkey’s government is aggressively working to attract foreign investment, in particular in local manufacturing. Its recently-announced incentive program has attracted substantial interest from multinationals, with over 270 applications for incentives already submitted.

This trend of increased investment in the economy, however, does not just signal multinationals’ continued confidence in the Turkish market as well as growing opportunity for B2B companies. It will also contribute to growing competition on the Turkish market, already one of the most competitive emerging markets globally. Companies caught off guard will see growing competition on price from both local companies and multinationals with a local presence undermine their profitability and restrict their ability to take advantage of the opportunity in Turkey. For companies committed to the market, this is the right time to invest in Turkey.

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