The Turkish economy has gone thru a fast and strong change in recent years. Three dimensions are of special significance: 1. Firstly, the Turkish economy has grown very quickly, with three severe recessions in 1994, 2000/1 and 2009. 2. Secondly, it has opened up rapidly but is still not that open as other economies with a similar level of development. 3. Thirdly, private business has increased but state enterprises or publicly owned and run firms are still important. --

Elitok, Secil Pacaci

Straubhaar, Thomas

English

Research Papers in Economics

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Elitok, Secil Pacaci; Straubhaar, Thomas
Research Report
The Turkish economy after the global
economic crisis
HWWI Policy Paper, No. 3-10
Provided in cooperation with:
Hamburgisches WeltWirtschaftsInstitut (HWWI)
Suggested citation: Elitok, Secil Pacaci; Straubhaar, Thomas (2010) : The Turkish
economy after the global economic crisis, HWWI Policy Paper, No. 3-10, http://
hdl.handle.net/10419/47675The Turkish Economy after the 
Global Economic Crisis
Secil Pacaci Elitok, Thomas Straubhaar
Hamburg Institute of International Economics (HWWI) and 
Transatlantic Academy, Washington DC | 2010
Paper 3-10
HWWI PolicySecil Pacaci Elitok received her Ph.D. in economics from University of 
Utah (USA). She joined the HWWI in June 2009 as a researcher in the 
context of the EU Marie Curie Research Training Network „TOM“ (Trans-
nationality of Migrants). 
Thomas Straubhaar, Helmut Schmidt Fellow at the Transatlantic Acade- 
my, is the Director of the Hamburg Institute of International Economics 
(HWWI) and Professor of Economics at the University of Hamburg. 
Hamburg Institute of International Economics (HWWI)
Heimhuder Straße 71 | 20148 Hamburg | Germany
info@hwwi.org | www.hwwi.org
The Transatlantic Academy
1744 R Street NW | Washington, DC 20009 | United States
www.transatlanticacademy.org
© Hamburg Institute of International Economics (HWWI)
    20. May 2010
All  rights  reserved.  No  part  of  this  publication  may  be  reproduced, 
stored in a retrieval system, or transmitted in any form or by any means 
(electronic, mechanical, photocopying, recording or otherwise) without 
the prior written permission of the publisher.1 
 
The Turkish Economy after the  
Global Economic Crisis 
 
Secil Pacaci Elitok, Thomas Straubhaar 
 
 
The Turkish economy has gone thru a fast and strong change in recent years. Three 
dimensions are of special significance: 
1.  Firstly, the Turkish economy has grown very quickly, with three severe recessions in 
1994, 2000/1 and 2009.  
2.  Secondly, it has opened up rapidly but is still not that open as other economies 
with a similar level of development.  
3.  Thirdly, private business has increased but state enterprises or publicly owned and 
run firms are still important. 
 
 
1.  Strong growth with severe crisis in between 
The Turkish economy has developed rapidly in the last forty years (see Table 1). The Gross 
Domestic Product (GDP) has grown from 14 billion US-$ in 1960 to 735 billion US-$ in 
2008.  Three times, in 1994, 2000/1 and 2008/2009, the Turkish economy was hit by 
severe recessions.  
 
Table 1: GDP in Turkey in Billion Current US-$ 
  1960  1970  1980  1990  2000  2008 
Turkey  14  20  65  151  267  735 
Data Source: World Bank: World Development Indicators. 
 
The Turkish GDP was about 2% of the US GDP in 1970 and 2.7% in 2000. Since then, the 
Turkish economy has caught up remarkably (see figure 1). Its weight with regard to the US 
has doubled to 5.2% in 2008. Turkey has become the 17
th largest economy worldwide and, 
consequently, it is a member of the G20 group. 2 
 
Figure 1: Economic Development of Turkey, Euro Area and United States 1968-2009 (GDP, 
current US-$; 1968 = 100) 
 
Data Source: Worldbank, Quick Query Data. 
 
The last decade has brought a strong dynamic growth to the Turkish economy (see table 
2). In the average it has grown by 5.9% per annum between 2000 and 2008. This is less 
than the excellent performance of the fast growing BRIC countries (Russia, India and 
China but not Brazil!). But it is (much) more than the GDP growth rate for the Asian, 
European or Latin American “tiger” states.  
 
Table 2: Growth rates of GDP for Turkey and Some Selected Emerging Markets between 
2000 and 2009 and forecast for 2010 and 2011         
             
 
Average 
2000-2008 
2008  2009  2010  2011 
Turkey  5.9  0.7  -4.7  5.2  3.4 
Brazil  3.6  5.1  -0.2  5.5  4.1 
Russia  6.8  5.6  -7.9  4.0  3.3 
India  7.9  7.3  5.7  8.8  8.4 
China  10.4  9.6  8.7  10.0  9.9 
Severe Recessions 
in 1994, 2000/01, 2008/09  3 
 
Hong Kong  5.2  2.1  -2.7  5.0  4.4 
Korea  4.5  2.3  0.2  4.5  5.0 
Singapore  5.8  1.4  -2.0  5.7  5.3 
Indonesia  5.2  6.0  4.5  6.0  6.2 
Mexico  2.7  1.5  -6.5  4.2  4.5 
Poland  4.4  5.0  1.7  2.7  3.2 
Hungary  3.6  0.6  -6.3  -0.2  3.2 
Ireland  3.5  -3.0  -7.1  -1.5  1.9 
Data Source: IMF: World Economic Outlook, April 2010, p.47-67, Various Tables  
 
The main Turkish growth problem was and is the relatively slow capital accumulation 
process (see Figure 2). Turkish gross capital accumulation has increased from a lower than 
20% level to almost 25% in the 1990s but has declined to a (too low) 22% level more 
recently. Compared to other countries with a similar level of development this is one of 
the bottlenecks for a more dynamic Turkish investment and growth process.  
 
Figure 2: Gross Capital Formation in % of GDP for Turkey and Some Selected Emerging 
Markets between 1960 and 2008                     
 
Data Source: World Bank: World Development Indicators. 4 
 
2.  How was Turkey caught in the recent global crisis? 
The Turkish economy has gone through a period of dynamic growth with some deep crises 
in between. Of course, worldwide, all economies have been hit by the severe economic 
crisis of 2008/09. This is also and probably especially true for the Turkish economy. Its 
growth rate has plummeted by almost 5% in 2009 (see Table 2). However, it might recover 
faster than expected in 2010.  
The most important factor behind the risk of the Turkish economy to be affected by the 
global crisis was its current account deficit (CAD). Before the Turkish economy was hit by 
the global crisis, it was one of the countries with the highest CAD/GDP ratio (5.9 % in 
2007, OECD Economic Outlook No.86). Hence, the Turkish economy faced the crisis with a 
high current account deficit and high external debt of 284.4 billion $ in the 2
nd Quarter of 
2008 (Central Bank of the Republic of Turkey). 
 
3.  Differences between the Crises in 1994, 2000/1 and 2008/9 
The crises that took place in Turkey in 1994 and 2000/1 were deeply different from the 
one in 2008/9 due to their causes and characteristics. These differences are obvious and 
normal when one takes into account the different economic conjunctures of time periods. 
1994 and 2000/1 the crises were financial in nature whereas the 2008/9 crisis hit the non-
financial sector most. 
The 1994 crisis was a result of high risk premium of private banks under lack of enough 
supervision of financial sector. Yet due to the high fragility of banking system, Turkish 
economy ended up with a liquidity and foreign exchange bottleneck. 
The  2000/1 crises were a financial crises originated from the fragile structure of the 
Turkish banking system.  In November 2000, crisis damaged state banks most due to the 
increasing size of “duty loss” accumulation and necessity to finance them by short-term 
domestic bank liabilities. In February 2001, private banks were hit hardest because of their 
sensitivity to exchange rate risk. 
In the post 2003 period, the Turkish economy followed a “high interest rate-low exchange 
rate-cheap import-high external indebtedness”  policy. This policy carried the Turkish 
economy to a real economy crisis in 2008/9.   
Another major distinction between the 2008/9 crises and the previous two is about the 
duration of them. 1994 and 2000/1 crisis were one-time speculative collapses (temporary) 
whereas in 2008, crises is defined as a long term stagnation and it occurred at a global 
level. 
 5 
 
4.  Three different views on the Global Economic Crisis 
There are various approaches intending to analyze and interpret the latest global crisis. 
These perspectives can be roughly categorized under three main groups.  
1.  A first view sees the global crisis as a breaking point in the history of capitalism, free-
market ideology and neo-liberalism and argues that the existing trade and finance 
structures are unsustainable.  
2.  A second group of thoughts also questions the nature of capitalism and underline the 
importance of state regulation. Both the first and the second group of approaches 
consider the global crisis as a permanent long term depression.  
3.  In contrast, a third group of thoughts approaches the global crisis as a short term 
temporary phenomena and reduces it to a governance problem which can be cured 
with more transparency and regulation.  
Besides these opposing theoretical stances, there is still a need for a clarification which 
makes a distinction between the triggering reasons and the structural reasons. This 
distinction is rather crucial especially in the case of Turkey. Within the context of the 
European Union (EU) membership discussion, Turkey’s position in the post-crisis period is 
of great interest. Especially, the stability of the Turkish economy after the global crisis is 
under discussion with respect to Turkey’s convergence/divergence to the EU.  
 
5.  Short Term Outlook 
According to IMF World Economic Outlook (WEO, April, 2010), Turkey is classified as a net 
debtor country. As it is presented in Table 2, real GDP growth of Turkey is projected to be 
5.2 % in 2010 and 3.4% in 2011.  According to IMF WEO the Turkish economy will grow by 
4 % in 2015. With regard to annual percent change in consumer prices, projections on the 
Turkish economy are as follows: 8.4 % by the end of 2010 and 6.1% by the end of 2011. 
WEO forecasts the balance on current account as a percent of GDP as well. Related 
numbers for Turkey are -4.0 in 2010, -4.4 % in 2011 and -4.7 in 2015. According to WEO 
forecast on main macroeconomic indicators of the Turkish economy, recovery from the 
global crisis already took place and percentage increases will follow a similar path in the 
next five to ten years. 
 
6.  Long Term Outlook 
The very dynamic development of the Turkish economy in the last decade has provoked 
speculations that Turkey will become one of the key players in the 21
st century. In an 
article for the newspaper  “Die Welt”  the former German chancellor Gerhard Schröder 
mentioned that “Turkey belongs to the top twenty economies worldwide, already. And the 
speed of its economic development is dramatic. In 20 to 25 years, Turkey will be the fourth 6 
 
or fifth largest economy in Europe and it will stay at the same level as Italy or France.” 
1 
Along the same lines, George Friedman believes that Turkey will become one of the most 
important global powers in coming years: “By 2020, Turkey will have emerged as one of 
the top ten economies in the world”.
2
A rough simulation exercise might indicate the credibility of statements expecting the 
Turkish economy becoming one of the strongest in the world. Table 3 presents the ranking 
of the top 20 economies according to the GDP in current US-$ for 2008.  
 
 
Table 3: Top 20 Economies According to the GDP (in trillion current US-$) for 2008. 
Rank  Country  GDP  US =100 
1  United States  14.093  100.0 
2  Japan  4.911  34.8 
3  China  4.327  30.7 
4  Germany  3.649  25.9 
5  France  2.857  20.3 
6  United Kingdom  2.674  19.0 
7  Italy  2.303  16.3 
8  Russia  1.679  11.9 
9  Spain  1.604  11.4 
10  Brazil  1.575  11.2 
11  Canada  1.501  10.7 
12  India  1.159  8.2 
13  Mexico  1.088  7.7 
                                                           
1 http://www.welt.de/debatte/kommentare/article7436815/Ohne-die-Tuerkei-versinkt-die-EU-
im-Mittelmass.html 
2 George Friedman: The Next 100 Years (A Forecast for the 21st Century). New York (Anchor Books), 
Paperback edition of January 2010, page 145. Fridman than goes on: “By 2020 Turkey will be a 
surging, fairly stable economic and military power in a sea of chaos” (page 145). 7 
 
14  Australia  1.015  7.2 
15  Korea  0.929  6.6 
16  Netherlands  0.871  6.2 
17  Turkey  0.735  5.2 
18  Poland  0.528  3.7 
19  Indonesia  0.511  3.6 
20  Belgium  0.504  3.6 
Data Source: World Bank: World Development Indicators. 
 
How much faster has the Turkish economy to grow year for year from 2010 to 2050 to 
reach the level of Russia (position 8 in 2008) or even Germany (position 4 in 2008) in the 
year 2050  (see Figure 3)? Assuming that the German GDP growth is 1.5% per year 
(corresponds to the long term trend of the German potential growth) the annual growth 
rate of the Turkish economy has to be 5.5% per year, that is 4 % higher than the German 
economy’s growth rate year for year from 2010 to 2050. And even if it was to reach only 
half of the German level, the Turkish economy has to grow 2.2% faster every year. Vis-à-
vis Russia, the Turkish economy has to grow 2% faster per annum to reach the same level 
by 2050.  
Figure 3: Simulation of GDP Development for Germany, Russia and Turkey from 2010 to 
2050 
 
Data Source: World Bank: World Development Indicators. 8 
 
 
Table 4: Annual GDP Growth rates of GDP for Turkey, Russia and Germany to Reach the 
Same Level in 2050 
 
Annual Growth Rate Needed 
   
 
to Reach German GDP in 2050 
   
 
to 100%  to 75%  to 50% 
Germany  0.015  0.015  0.015 
Russia  0.035  0.028  0.017 
Turkey  0.055  0.048  0.037 
Data Source: World Bank: World Development Indicators. The Hamburg Institute of International Economics (HWWI) is an independent   
economic research institute, based on a non-profit public-private partnership, 
which was founded in 2005. The University of Hamburg and the Hamburg 
Chamber of Commerce are shareholders in the Institute . 
The HWWI’s main goals are to: 
• Promote economic sciences in research and teaching;
• Conduct high-quality economic research; 
• Transfer and disseminate economic knowledge to policy makers, 
    stakeholders and the general public.
The HWWI carries out interdisciplinary research activities in the context of 
the following research programmes: Economic Trends, Hamburg and Regional 
Development, World Economy and Migration Research Group.
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ington, D.C. and is a joint initiative of The German Marshall Fund of the Unit-
ed States, the ZEIT Stiftung Ebelin und Gerd Bucerius, the Robert Bosch Stif-
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serves as a forum for a select group of scholars from both sides of the Atlantic 
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The Turkish economy after the global economic crisis

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