Turkey, straddling Europe and Asia, has a gross domestic product of $773 billion
It represents the fourth letter of a new acronym crafted by Goldman Sachs: MIST
After blistering growth in the past two years the country has hit a patch of turbulence
But there is a silver lining in this slow down
Editor’s Note: John Defterios is CNN’s Emerging Markets Editor and anchor of Global Exchange, CNN’s business show focused on the emerging and BRIC markets.
Turkey straddles Europe and Asia, is a gateway for oil and gas imports going into Europe and its economy has trebled in size over the past decade. The country’s gross domestic product is now a sizable $773 billion.
It also represents the fourth letter of a new acronym crafted by Goldman Sachs (the investment bank which identified the BRIC nations) to highlight stable, fast growing countries: MIST: Mexico, Indonesia, South Korea and Turkey.
But after blistering growth of between 8.5% and 9% growth in the past two years, the country has hit a patch of turbulence. Investors are now eager to find out whether this economy can stabilize after tumbling 2.9% in the second quarter of this year.
Mehmet Simsek, a former London-based investment banker and economist who is now finance minister of Turkey, is confident the current quarter represents the trough. “A modest growth is also likely in the third quarter, but from the fourth quarter onwards a pick up seems reasonably likely,” he told CNN.
Turkey’s central bank moved to support growth with a larger than expected 1.5% cut in the main interest rate Wednesday, pushing it down to 10%. Now that the U.S. Federal Reserve, the European Central Bank and the Bank of Japan have provided more liquidity, Turkey believes there is room to maneuver.
“The move by the Turkish Central Bank should be considered in the context of both domestic and international conditions,” Simsek said in an interview from Ankara. “The slow down is partly micro-managed. It’s part of moving to more sustainable growth.”
The government is facing other issues. It is having difficulty controlling the two major outbreaks of violence at its doorstep.
Syrian refugees continue to flood in, officially 80,000 to date, and there’s been a flare up of the crisis with Kurdish militants in the south-eastern corner of the country.
Both challenges will continue to chip away at Turkey’s predominant role as the hub for East-West trade if they escalate and drag on for years rather than months.
But there is a silver lining in this slow down. During the years of rapid growth, economists fretted over the country’s double digit current account deficit. Imports have slowed down and exports are booming – up 20% in the second quarter – despite the slowdown in the European Union.
From over 10% of GDP, the deficit is now down to a manageable 7.4% – and the finance minister is aiming to get that down to 6% within the next two years.