As Europe and Central Asia continue to recover from the economic downturn of 2008, Turkey’s on-going economic reforms continue to produce benefits for the country, though risks remain.
World Bank officials introduced their economic outlook for Europe and Central Asia at their Annual Fall Meetings Friday.
Speaking at the international gathering, officials commended Turkey for structural reforms made over the past decade, but cautioned against growing domestic debt.
"I would argue that Turkey is really an example of a country that has been very successful in structural reforms. After their crisis in 2001, the banking sector is in a much better place. Still, very competitive. So in that sense, it’s not a country where you’re looking for an acceleration of the reform agenda. As a result of the fact that they have been very successful, they could also be very successful after the crisis to stimulate their economy, and that is where the problem now is, because debt has led to so much domestic credit, to so much domestic demand that they have a widening of the current account, and have become much more vulnerable to shocks in financial markets, because they rely on portfolio capital," said Hans Timmer, World Bank's chief economist for Europe and Central Asia.
He added, "Turkey has been incredibly successful after the crisis to stimulate the economy largely with monetary stimulus, a lot of domestic credit creation. But to some extent they’re paying the price now for it, you see increasing current account deficits, and that creates a vulnerability."
-Syrian civil war’s impacts on Turkish economy not yet determined
With estimates of around half a million Syrian refugees currently seeking safe haven in Turkey, Martin Raiser, country director for Turkey at the World Bank, said that the fallout from the Syrian civil war on the Turkish economy have yet to be fully determined.
"The fiscal costs of accommodating these people in Turkey is significant. Turkey has shown itself to be very generous in accommodating them. There are implications on the local labor markets, but this is not something we have looked into in a sufficient amount of detail," he said.
- Outlook for Europe and Central Asia
Structural reforms are a key regional focus for the World Bank as it seeks to pull the region out of the dregs of 2008’s global economic downturn.
"The tough reality is that the central problems in the economies of emerging Europe and Central Asia are of a structural nature and require domestic, structural solutions,” said Laura Tuck, vice president of Europe and Central Asia at the World Bank.
During the press briefing, World Bank officials presented their economic update for Europe and Central Asia, which noted that the region has seen multiple levels of growth.
"World Bank operations in Europe and Central Asia (ECA) cover 23 countries, most of which have undergone a modest economic recovery since 2010 following the global economic crisis. However, this been a multi-speed recovery," said the report.
It added: "The Europe and Central Asia region as a whole experienced a significant economic slowdown in 2012, when economic growth fell to 2.4 percent, compared to 4.9 percent in 2011. The economic slowdown was more severe in Central and Southeastern Europe (CSEE) than among Commonwealth of Independent States (CIS) economies."
Still, Turkish and CIS economies are likely to see triple the growth of their CSEE counterparts.
"This year, CSEE countries are expected to grow by just 0.9 percent on average, while average growth for Turkey and CIS economies is project at 2.7 percent."