• With stagflation becoming a reality, exports represent an important source of revenue for the economy, particularly in the automotive sector
• Exporters are flexible; Government support is vital to gaining new market share.
Lower domestic demand, higher borrowing costs and
depreciation of the pound slowed down the dynamics of the industry
Turkey is currently experiencing a sharp economic slowdown, coupled with rising inflation following the sharp depreciation of the pound in 2018, which has affected the country’s consumption and production. In June, Coface downgraded the country assessment of high-risk Turkey (C), and the third quarter was marked by a wave of sectoral degradations.
The government’s actions have helped counter a further rise in inflation and temporarily support some sectors, but a full recovery should take time.
On the industrial production side, the pace of growth fell to 1.6% in 2018 compared to almost 9% in 2017, and companies continued to suffer the effects of falling domestic demand. In September 2018, producer prices experienced a record annual increase of 46% and consumer prices jumped 24%. Sectors that depend on domestic demand, such as construction, retail trade and information and communication technologies, are among the most affected. But by 2019, inflation is expected to decelerate due to a base effect and a lower impact of a weaker pound.
Despite many difficulties, exports are a major source of revenue for the economy
Due to the deteriorating economic situation, exports have become an important source of income for the Turkish economy. In 2018, they increased by 7% over the previous year to reach $ 168 billion, with positive results in the fields of chemistry (17%), motor vehicles (12%) and paper ( 11%), followed by textiles and clothing (5%) and food (4%).
The automotive sector, in particular, was the leading export in 2018, with a 17% share of total exports. It has benefited from economic growth in European countries (final destination of 50.3% of exports) and several measures taken by the government.
Turkey enjoys high comparative advantages in the fields of textiles, clothing, metals and plastics. This excellence has allowed the country to stand out in the sector specialization, possibly to increase in complexity and gain new market shares in the future, in line with the new economic program of the government for 2019-2020 based on the rebalancing of the economy through increased exports. The pharmaceutical sector, chemicals, petrochemicals, energy, machinery and software are considered as priorities in terms of investments.
The technology sector remains in a less favorable position because of its limited capacity.
Low technology and limited competitiveness are factors that limit further growth of Turkish exports. Turkey is highly integrated in global value chains and has a strong link with European industrial production, particularly with Germany (Turkey’s largest export market). Export earnings will therefore depend on the resilience of European growth, particularly for the automotive and textile-clothing sectors.
Coface: for trade – Together, let’s develop the company
70 years of experience and a finest territorial network have made Coface a reference in credit insurance, risk management and the global economy. Coface’s experts, whose ambition is to become the most agile credit insurance partner in the industry, operate at the heart of the global economy, helping 50,000 customers build successful, dynamic and growing businesses. The Group’s services and solutions protect and help businesses make the credit decisions needed to build their ability to sell in their domestic and export markets. In 2018, Coface had ~ 4,100 employees in 100 countries and recorded a turnover of € 1.4 billion.