By Daniel Dombey in Istanbul and Funja Guler in Ankara
Surveying rows of gleaming, unsold cars in his Ankara showroom, Ersan believes the Turkish economy is running low on fuel. His sales are down 10 to 15 per cent on last year – reflecting trends in the country rather than his ability to close a deal.
Turkey’s economy grew by just 2.9 per cent in the second quarter compared with a year before, data released on Monday revealed – a marked contrast with growth rates of more than 8 per cent in both 2010 and 2011.
“In our showrooms you will see lots of people who look as if they are going to buy, but they only pass through and leave,” says Ersan, who has experience of many such disappointments. After the recent years of economic boom, many customers have already traded up their cars and increased their debts, he surmises.
Domestic demand is not what it was in Turkey. In the second quarter the country would have tipped into recession were it not for an extraordinary surge in exports to the Middle East.
As other emerging markets such as India, China and Brazil also slow down, words of caution are increasingly being heard – it may be unreasonable to expect Turkey to continue the decade-long streak in which gross domestic product tripled in dollar terms.
“The days of 6 to 8 per cent growth are over,” says Reinhard Cluse at UBS, who notes, however, that even at 4 to 5 per cent Turkey would be growing faster than many of its peers. He adds that part of the previous decade’s record of success was because of gains now factored in, such as the shift to more prudent economic management in a country that was once a byword for crisis.
Some economists argue there was a one-off nature to much of Turkey’s growth in the 2000s, because so much demand, investment and borrowing had been pent up during the previous, unstable decade, and took shape when the country’s politics and economics stabilised.
Today is a different story. According to Monday’s figures, construction, which grew by more than 11 per cent last year, edged up only 0.4 per cent in the second quarter.
Cuneyt Yavuz, general manager of Mavi Jeans, one of Turkey’s leading international brands, is expecting shopping malls – one of the great symbols of the country’s boom years – to close at a rate of one a month.
“It’s a great opportunity for companies to see what they can convert them into,” he says, noting that his company plans to increase its international activities, partly to hedge in case Turkey “has a more stagnant period”.
The good economic news for Turkey is exports, which surged ahead at an annual rate of almost 20 per cent in the second quarter. Together with a 3.6 per cent decline in imports, this is contributing to a marked reduction in the country’s current account deficit – often seen as an economic weak spot because of its size and reliance on volatile portfolio flows for financing.
But 60 per cent of the increase in Turkey’s exports during the first seven months of the year was down to soaring gold sales to Iran, where people have increasingly sought to hold savings in the metal rather than at sanctions-hit banks, according to calculations by William Jackson at Capital Economics in London. The trade effect of the gold sales may be about to fall away; after selling off much of its stock to Iran, Turkey is reverting to a net gold importer.
“We don’t think the export boom can continue at its current pace – not least due to falling demand from the eurozone,” Mr Jackson says. The Turkish central bank’s scope to loosen monetary policy is limited by its need to keep rates high enough to attract foreign funding, he adds.
In Ankara, Ersan has other concerns too. He thinks customers are worried by political risk – the fighting in neighbouring Syria and the battle against violent Kurdish militants in Turkey itself.