Transcript Slide 1

Turkey: Solid fundamentals,
structural roadblocks
Title
Melis Metiner
HSBC
EVENT: Economist
+90 (212) 376 4618
DATE:
[email protected]
  
Turkey has a young, growing population…
•
•
•
•
Turkey has a young population with a median age of 28
60% of the population is below the age of 35
The population grows 1.3% per year
The working population is expected to grow 1.4% per year between 2010 and 2020, 0.2%
between 2030 and 2040 and -0.2% between 2040 and 2050
70
Population dynamics between 1990 and 2050
millions
60
50
40
30
20
10
0
Learning
Working
1990
2010
Retired
2030
2050
  
Source: UN, HSBC
2
Favourable debt dynamics…
90%
Household debt as a share of GDP
80%
70%
60%
50%
40%
30%
20%
10%
0%
Spain
Portugal
EU25
Total household debt
Source: CBRT
Greece
Italy
Hungary
Poland
Czech
Rep.
Excluding mortgage debt
Turkey
Mortgage debt as a share of GDP
Netherlands
Denmanrk
Ireland
UK
Sw eden
US
Norw ay
Portugal
Spain
Cy prus
Finland
EU27
Germany
Belgium
Lux embourg
France
Greece
Austria
Italy
Czech
Poland
Hungary
Romania
Turkey
Russia
5%
5%
2%
0%
26%
22%
19%
18%
17%
20%
52%
48%
43%
42%
38%
34%
40%
Source: European Mortgage Federation
3
71%
68%
65%
61%
58%
60%
82%
81%
80%
106%
104%
90%
88%
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100%
And a diversified economy
2010 GDP breakdown
Services
61.0%
Agriculture
9.1%
Manufacturing
24.2%
Construction
5.6%
Source: Turkstat
4
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Jan-00
May-00
Sep-00
Jan-01
May-01
Sep-01
Jan-02
May-02
Sep-02
Jan-03
May-03
Sep-03
Jan-04
May-04
Sep-04
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
But when it grows, it creates external imbalances…
45%
y-o-y, 6mma
Export and import growth
35%
25%
15%
5%
-5%
-15%
-25%
-35%
-45%
Exports
Source: Turkstat
5
Imports
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And runs a large current account deficit
10
Current account balance (bn $)
0
-10
-20
-30
-40
-50
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
-60
  
Source: CBRT
6
Source: Fitch
7
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United States
United Kingdom
30
Portugal
Turkey
Ukraine
Romania
Brazil
France
Italy
Denmark
Poland
Mexico
Belgium
Sweden
Argentina
Japan
Netherlands
Germany
60
Finland
Hungary
Austria
Korea
Czech Republic
Australia
Russia
Switzerland
Ireland
Norway
China
Low domestic savings mean dependence on external
financing…
Domestic savings as % of GDP
50
40
Average: 26%
20
10
0
Which makes Turkey’s growth model an unsustainable
one
12%
Growth and the capital account
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
Annual GDP growth
Capital account balance to GDP
Source: CBRT, Turkstat
8
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
-10%
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Source: HSBC
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Source: Undersecretariat of Trade, HSBC
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2010E
2009
2008
2007
2006
2005
0
2004
Average: 41%
2003
100
2002
120
2001
140
2000
68
1999
160
1998
Merchandise exports as % of GDP
1997
180
1996
Hong Kong
Singapore
UAE
Malaysia
Vietnam
Hungary
Taiwan
Thailand
Saudi Arabia
S Korea
Kazakhstan
Ukraine
Chile
Poland
Nigeria
China
Russia
Romania
Mexico
Israel
Venezuela
Philippines
Indonesia
S Africa
Argentina
Turkey
Sri Lanka
India
Egypt
Colombia
Pakistan
Brazil
Exports are nominally low and low value added
Import dependence of exports (%)
66
64
62
60
80
58
60
40
56
20
54
52
50
While import appetite is strong for both energy and
non-energy items
Energy and non-energy imports
85%
y-o-y, 3mma
65%
45%
25%
5%
-15%
-35%
Energy imports
Non-energy imports
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Source: Turkstat
10
May-11
Jan-11
Sep-10
May-10
Jan-10
Sep-09
May-09
Jan-09
Sep-08
May-08
Jan-08
Sep-07
May-07
Jan-07
Sep-06
May-06
Jan-06
Sep-05
May-05
Jan-05
Sep-04
May-04
Jan-04
-55%
High (and volatile) inflation is another issue
18%
4.0%
Annual consumer price inflation
16%
Inflation volatility
3.5%
14%
12%
3.0%
10%
2.5%
8%
2.0%
6%
1.5%
4%
2%
1.0%
0%
0.5%
-2%
-4%
Jan-04
May-04
Sep-04
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Jan-04
May-04
Sep-04
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
0.0%
Czech Republic
Czech Republic
Hungary
Israel
Russia
South Africa
Turkey
Hungary
Israel
Russia
South Africa
Turkey
Poland
Poland
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Source: CEIC, HSBC
11
… Food inflation in particular
Descriptive Statistics on Unprocessed Food Inflation
Average Lowest Highest
Turkey
Unprocessed Food
Fruits
Vegetables
Meat
0.95
1.45
0.91
1.16
-10.38
-22.27
-20.11
-6.95
EU 27
Unprocessed Food
Fruits
Vegetables
Meat
0.21
0.19
0.21
0.24
-1.46
-4.66
-4.24
-0.32
Range
St Dev
Volatility Rank
10.39
30.98
23.43
6.37
20.77
53.25
43.54
13.32
4.09
9.39
9.11
2.74
1
2
3
1
1.38
4.25
4.76
0.79
2.84
8.90
9.00
1.11
0.66
1.80
2.29
0.26
Source: Eurostat
Inflation volatility
11%
9%
7%
5%
3%
Jan-04
May-04
Sep-04
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
1%
Headline
Source: Turkstat, HSBC
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Food and non-alcoholic beverages
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17%
Unadjusted
Thailand
Brazil
Canada
Norway
Switzerland
S Korea
Australia
US
Sweden
Russia
UK
Mexico
Austria
Germany
Japan
Spain
Czech Rep
India
Nigeria
France
S Africa
Poland
Romania
Hungary
Turkey
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Labour market participation is low…
Unemployment rate
15%
13%
11%
9%
Seasonally adjusted
Source: Turkstat
75%
Labour force participation rate (%)
65%
55%
45%
Source: World Bank
13
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…And the share of unrecorded employment is high
Agricultural employment
Total employment
Unrecorded
41%
Recorded
17%
Non-farm employment
Unrecorded
28%
Recorded
59%
Unrecorded
83%
Recorded
72%
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Source: Turkstat
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Which translates into a small tax base
Pakistan
Turkey
Poland
China
Indonesia
Thailand
Egypt
Ukraine
Russia
India
Philippines
Malaysia
Taiwan
Singapore
Kazakhstan
Hungary
Israel
South Africa
Brazil
S. Korea
Direct taxes as share of GDP
16%
14%
12%
10%
8%
6%
4%
2%
0%
Share of various taxes in total tax revenue
Source: OECD
Corporate tax
Internal VAT
10%
13%
VAT from
Income tax
imports
19%
17%
Other indirect
tax es
14%
Special
consumption tax
27%
Source: Ministry of Finance
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  
Turkey faces four structural weaknesses that require
structural reform
1.
2.
3.
4.
In the area of trade, it needs to open up its economy and improve
competitiveness in global markets by increasing the value added
of exports and diversifying its export markets. It also needs to
reduce its energy dependence by investing in alternative energy
resources
Agriculture and land reform are needed to rein in high and volatile
food inflation that threatens price stability in the medium term
The labour market needs more flexibility: minimum wage, nonwage labour costs, female participation in the workforce and skills
mismatch are all areas that require attention
Finally, tax reform, legitimising the grey economy and widening the
tax base will make public finances more resilient in the face of
global shocks
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