Market Report: Turkey

From the November 2017 issue.

Eastern Europe’s transport equipment market is slowly finding its way back to old strength.

Turkey, not long ago Eurasia’s most promising growth market, has had a tough run since a failed coup attempt in July 2016 destabilised the nation’s economy and divided the electorate to the point of civil war – prompting President Recep Tayyip Erdogan to officially declare a state of emergency and arrest some 50,000 people suspected of treason.

The ensuing political chaos culminated in a history-making referendum held in April 2017, which saw Turkey formally abandon the old parliamentary system and give sweeping powers to Erdogan (see breakout box), who has since tried to rebalance the economy and restore the country’s deeply damaged relationship with the European Union.

From a trailer sales perspective, the President’s effort to steady the once-booming Turkish economy doesn’t come a moment too soon, according to Gary Beecroft, Managing Director of UK-based consultancy, CLEAR International. “Political instability [has] had a dire effect on business investment,” he says. “We are expecting a 29 per cent drop in trailer demand in Turkey for 2017, equating to some 19,700 trailers.”
According to Beecroft’s latest analysis of the European transport equipment market, Turkey must be considered Eastern Europe’s economic linchpin – both with view to mere sales volume and business confidence at large. As such, a weakening Turkey will directly affect the region’s overall performance.

“For the second year in a row, demand for trailers in Eastern Europe has been hit by a severe downturn in the Turkish market for commercial vehicles,” he shares, adding that he doesn’t expect confidence in Erdogan to bounce back immediately. “Victory for the President has done little so far to improve the situation.” he explains. “Trailer demand fell 39 per cent in the first quarter and 30 per cent in the first half of the year.”
While Beecroft is optimistic that Turkey will soon embark on the road to recovery, the title of Eastern Europe’s largest trailer market won’t be reclaimed for a while. That position has now been be taken up by Poland, home to one of Europe’s fastest-growing OEMs, Wielton.

CLEAR’s data also shows that Poland, the poster child of post-communist economic development, is leading a group of hitherto overlooked eastern bloc economies that could seriously challenge the establishment in the years to come. The Ukraine, for instance, has seen a notable increase in trailer demand in 2016 and – along with Latvia and Russia – will be the only country in the region to record a “substantial percentage increase” in 2017 too, Beecroft predicts.

Despite still being engulfed in what some news outlets have dubbed an “invisible war” with Russia that churns on largely unnoticed by the outside world, Swedish economist and Senior Fellow at the Atlantic Council, Anders Åslund, says the Ukraine has made “remarkable progress” on reducing its fiscal deficit and public debt, positioning the economy for strong growth.

“The country has experienced an impressive economic turnaround, but corruption remains rife,” he explains. “President Petro Poroshenko’s administration has stabilised public finances, but failed to rein in clientelism. [As such,] the question is whether any judicial and legal reforms that Poroshenko undertakes can establish the conditions for strong, sustained economic growth.”

The same is true for most of the eastern bloc, he says, with Turkey’s situation still weighing heavily on the success of the region, amplified only by the end of a five-year EU funding period in 2016. While growth is returning to Western Europe after several difficult years, the consensus is that Eastern Europe will be playing catch-up with the old, pre-2004 Europe for a while (see breakout box).

Overall, investment fell in 13 out of 15 countries analysed by CLEAR International, with an average decline of 4.1 per cent in 2016. But according to the International Monetary Fund (IMF), the low point has now been reached. A new EU funding round has kicked off in 2017, the vast Russian economy is slowly recovering and Turkey’s growth forecast for 2017 was raised from 2.5 per cent to 5.1 per cent.

The result is an optimistic take on the future of Europe’s often overlooked east, with newswire Bloomberg pointing to Romania as another ‘dark horse’ to watch, and also commending the Czech Republic’s 2.9 per cent increase in Gross Domestic Product (GDP). “The former communist nations, with combined economic output of about $1 trillion, are benefiting from healthier demand in their western neighbours and resumed flows of EU assistance that’s used to revamp roads and bridges,” Bloomberg concluded in a recent media briefing. “Expansionary fiscal policies are also boosting household spending, while unemployment is hovering near record lows.”

Agrees Beecroft, “The economic forecast for Eastern Europe is for stronger GDP and investment growth in 2017, which will result in recovering levels of trade and more demand for road transport,” he explains. “[However,] there will still be a three per cent fall in trailer demand entirely caused by weakness in Turkey.”

Looking beyond 2017, the region is expected to see a more substantial reshuffle, with a cyclical slowdown likely to affect both GDP and investment growth in 2018-19 before the market is expected to accelerate again in 2020-21. “Despite difficulties in the region, particularly affecting Turkey, we will see growth in trailer demand in four of the next five years,” Beecroft summarises. “This will result in trailer sales exceeding the pre-GFC level of 2006 by the year 2020.”

Fast Fact
The bitterly contested referendum Turkey passed in April gave sweeping powers to the Turkey’s President Recep Tayyip Erdogan and turned the nation from a parliamentary to a presidential republic. “With the role of Prime Minister scrapped, the President became the head of the executive, as well as the head of state,” the BBC summarised. “He was given new powers to appoint ministers, prepare the budget, choose the majority of senior judges and enact certain laws by decree, too. What’s more, the President alone will be able to announce a state of emergency and dismiss parliament.”

Fast Fact
Many Eastern European countries joined the EU in 2004, which resulted in booming demand for trailers across the region, according to UK consultancy, CLEAR International. From 2002 to 2007, the compound annual growth rate for trailer demand was 25.7 per cent. Demand broke the 100,000-unit barrier in 2007, but fell to 40,000 in 2009 as a result of the Global Financial Crisis (GFC).

Fast Fact
According to UK consultancy, CLEAR International, 77 per cent of goods in Europe are moved by road – and most of that proportion is transported in a trailer.

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