Outlook for Turkey positive despite challenging 2016

Despite a series of shocks in 2015 and 2016, Turkey’s automotive sector is set to remain strong, according to a new Coface report.

According to the French credit insurance company, heightened regional tensions, intensifying domestic security problems, the failed coup attempt from July and the resulting credit rating downgrade are likely to lead to a decline in GDP growth for the country, but won’t bring it to halt.

The automotive sector in particular is expected to bounce back strongly in the year to come: “While there was a slight decrease in the domestic [automotive] market, external conditions remain supportive,” Coface found.

“In the first ten months of 2016, total sales declined by three per cent compared to the same period in 2015. This fall has mainly resulted from the slow-down in economic activity, which dragged down sales in the commercial subcategory by 12.3 per cent in the January to October 2016 period.”

In 2017, Coface said the main challenges for the automotive sector will be related to new regulations and fluctuations in the lira.

“The recent depreciation in the lira could increase upwards pressure on prices in the coming period, given that the import ratio in the domestic market stood at 76 per cent in the January-October period.”

In light of that risk, Coface said government spending is expected to be one of the key growth drivers in 2017. “The country’s low public deficit and debt levels … means that it can use fiscal policy as a tool to mitigate economic slumps.”

To counter waning business sentiment, the Turkish government has already announced a broad investment package whose objective is to improve the investment climate, via a project-based approach, Coface pointed out.

“Looking ahead … the rate of foreign capital inflows into Turkey in 2017 will be very important for its economic performance,” Coface added.

“The country is still attracting foreign funds, but the sustainability of these capital inflows will depend on the business environment and developments in global financial markets.”

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