Turkey’s domestic demand likely a key growth driver in 2016

The Turkish government forecast the economy to expand strongly by 4.5% in 2016. However, Rabobank projects the economy to expand at 3.8%. Nevertheless, an expansion of anything between 3.5% and 4% is a fairly respectable growth in a global scenario where there are concerns regarding the slowdown in an emerging market and sluggish growth in developed nations.

Domestic demand is expected to remain the main factor of growth, as 30% growth in minimum wage should increase consumer spending. On the other hand, the increasing geopolitical risk, stimulated by the current conflict in Syria, weakens consumer confidence.

Consumer sentiment had risen considerably to 77.15 in November; however, it has fallen since and currently stands at 66.64. Nevertheless, it is still more than 2015's low of 62.35. If there are any stabilization signs in Syria, consumer sentiment in Turkey should improve. After the conclusive election outcome, outlook of investment also improved.

Turkey, as an importer of energy, should also gain from the outlook of lower oil prices. This assumes that the Turkish lira continues to stay relative stable against the US dollar. Contribution from net exports is not likely to rebound significantly as long as the situation in the Middle East continues to be unstable. Turkey faces risks on the downside due to an increase in geopolitical tensions.