beyondbrics

Whatever criticisms you can make of what one analyst labels Turkey’s “unstoppable” economy, there’s one thing the country’s economic boom is thankfully free of. It’s not an American style jobless recovery.

Quite the contrary. In the last year Turkey has created some 1.8m new jobs. Figures released on Thursday showed unemployment fell to 8.8 per cent to September, the lowest level since 2005 and down from a 2009 peak of more than 16 per cent.. On a seasonally adjusted basis, unemployment fell to 9.2 per cent, also the lowest level of recent times. But analysts are almost universal in predicting that things won’t stay quite this sweet for long.

Unstoppable it may be for the moment, but just about no one expects Turkey to keep up its current hectic pace of economic expansion – 9.6 per cent for the first nine months of this year compared with the same period in 2010.

Indeed, on Thursday Merrill Lynch added its voice to Goldman Sachs’ in warning of the risk of an imminent recession.

“With the complexity of central bank policy and the need for corporates to absorb their foreign exchange mismatches, the result could manifest itself in a recession which we do not believe is fully appreciated by the market,” Merrill said, in an apparent reference to the central bank’s sensationally complicated interest rate corridor policy and the $59bn of dollars in short term obligations held by Turkish corporates, much of which come due in the next few months.

The interest rate corridor policy involves rationing how much the central bank lends commercial banks at the benchmark rate of 5.75 per cent rather than more expensive rates of 12 and 12.5 per cent. It allows the central bank a huge amount of flexibility over rates, but has led to widespread calls, particularly from abroad, for greater transparency and predictability.

Indeed, so great is the confusion about what interest rates actually are that some bankers say it has become hard to perform an old-fashioned carry trade, and that many portfolio investors are just waiting until the benchmark rate is increased to deal with Turkey’s bloated current account deficit and rising inflation.

Still, that’s not to say there isn’t any foreign investment. Just this week, the Malaysian sovereign wealth fund Khazanah Nasional moved closer to completing a deal whereby it would take a majority stake of Acibadem, a big Turkish hospital chain, through direct and indirect holdings. Since Acibadem, which runs 11 hospitals and other medical facilities, has market capitalisation of about TL2.5bn ($1.3bn), it is not a trivial deal.

So while Turkey may be headed for tougher times in coming months – and the jobs bonanza seems set to slow – its longer term growth story is still bringing investors in.

Related reading:
More pussycat than tiger, but Turkey has bite, FT
Turkey: slowdown or smash up? beyondbrics
Surging Turkish growth raises fears, FT
Turkey’s economic model faces tough test, FT
Ankara riled by IMF, beyondbrics