Turkey had a strong 2011, with GDP growth exceeding 8% for the year. However, we expect a noticeable slowdown in 2012 to 1.7% YoY. The main drivers of the slowdown are weakening industrial production as eurozone demand for Turkish exports slows, tightening credit conditions in the eurozone, and rising inflation in Turkey. These factors will come together to put downward pressure both on business and consumer demand and will affect multinational companies across a wide variety of sectors.
However, Turkey has consistently surprised on the upside over the past several months, and a very gradual slowdown of the economy in 2012 is becoming increasingly likely. What is more, as the Turkish lira remains relatively weak, the exchange rate will favor companies exporting from Turkey and will partly offset the declin in export demand from the eurozone. We expect Turkish growth to accelerate once again in 2013 as the effect of the eurozone crisis wears off and Turkey’s current account deficit narrows, improving market confidence in the country’s economic stability.
Meanwhile, 2012 is a year of opportunity for companies looking to invest on the Turkish market. With tighter credit conditions and low export demand putting pressure on the local companies’ financial stability, a weak currency, and lower investment from the eurozone, MNCs will have more targets to choose from for M&A this year, at a lower cost of investment, and facing weaker external competition for priority targets. With the market expected to rebound next year, companies that invest in Turkey this year will find themselves positioned for stronger growth in 2013 and beyond.