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Updated Monday, January 2, 2012 0:10 am TWN, By Fulya Ozerkan, AFP

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Euro crisis may slow Turkey's roaring economy

ANKARA -- With the economy growing at a record pace, Turkey's leaders exude confidence it can dodge any eurozone crisis fallout, but analysts warn a slowdown in its top trading partner will hit in 2012.

Turkey's Deputy Prime Minister Ali Babacan asserted recently that Turkey has managed to avoid any impact from the economic crisis troubling European countries.

With one of the highest growth rates in the world in 2010 at 8.9 percent, Turkish officials pledge it will move from 17th place to the ranks of the top 10 economies by 2023.

“We will surpass one by one” the economies which are currently above Turkey, said Babacan, who boasted if Turkish leaders had been at the helm in Europe the region's problems would have been resolved “within three months.”

But economists and analysts say the Turkish economy, which is closely linked to that of the EU via a customs union agreement since 1995, will feel the effects if the eurozone tips into recession in 2012 as feared.

“Whatever happens in Europe closely concerns Turkey. If the EU catches a cold, Turkey sneezes as the two economies are inter-dependent,” a European politician said on condition of anonymity.

“Before the 2008 global crisis, Turkey's exports to the EU stood at 56 percent but this figure is now down to 47 percent” said Sarp Kalkan, analyst at TEPAV think tank.

So far Turkish exports to the EU have not shrunk in absolute terms, but exports to the Middle East and North Africa grew rapidly.

But the eurozone is likely to experience a brief recession in 2012 and end up with anaemic growth of just 0.2 percent, according to the OECD. The banking industry's lobby group, the Institute of International Finance, expects the eurozone will have a much sharper recession and end up with a 1.0 percent contraction.

The OECD forecasts Turkish growth will slow to 3.0 percent in 2012 from 7.4 percent in 2011.

But Turkish-EU economic interaction is based on more than trade, with finance also playing an important role, noted Basak Karaaslan, an Istanbul-based sales expert and economist at Finansbank.

“A deepening financial crisis in Europe would inevitably slow down Turkey's growth because the Turkish economy is dependent on external financing,” she said.

She predicted Turkey's growth rate will plunge to 1 percent in 2012, while the government forecasts 4 percent.

Turkey has also benefited from its status as an EU candidate nation, as well as the economic and political reforms it has undertaken to gain membership, which boosted investor confidence and helped attract foreign investment behind its stellar growth.

“In the past Turkey was a country associated with political instability and military coups but now foreign investors are confident that stability prevails,” said a European diplomat.

Foreign direct investment soared from US$571 million in 2002 to US$19.1 billion in 2007. Since the global financial crisis FDI inflows have slowed, decreasing to US$6.3 billion in 2010.

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