Turkey is one of the largest middle-income partners of the World Bank Group (WBG), and the 18th largest economy in the world. In less than a decade, per capita income in the country has nearly tripled and now exceeds $10,000.
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Oil price shock and slowdown in Russia impacting region’s growth outlookWASHINGTON, April 17, 2015 - In the Emerging Europe and Central Asia (ECA) region, lower oil prices and the economic slowdo... Show More +wn in Russia are weighing heavily on many economies in Eurasia, while countries in the Eurozone are benefiting from lower oil prices and a modest economic recovery. Overall, economic growth in ECA will be almost non-existent in 2015, down from 1.8 percent last year, the World Bank said during the 2015 World Bank/IMF Spring Meetings.This drop in growth largely comes from a major slowdown in Russia, which is caused by lower oil prices and a sharp economic downturn. Not counting Russia, the rest of the region is expected to grow by 2.8 percent in 2015.“Emerging Europe and Central Asia is expected to be the slowest growing region worldwide, with almost no growth forecast for 2015,” said Laura Tuck, Vice-President for the World Bank’s Emerging Europe and Central Asia region. “These low growth prospects are driven in large part by those countries in the eastern part of the region that are highly dependent on oil exports, or on trade and remittances from oil exporting countries, which are experiencing a slowdown. This is compounded by ongoing geopolitical tensions due to the conflict in Ukraine. Poor households are hit either directly because they receive fewer remittances, or indirectly because of the macroeconomic consequences, including higher import prices, the disappearance of jobs in construction and other non-tradable sectors, and potentially lower government transfers because of induced fiscal pressures. As a result, poverty rates are expected to rise.”Tuck added that, “On the other hand, Central and South Eastern Europe and the Western Balkans – those countries that have close ties to the Eurozone – are benefitting from an increased pickup in net exports. The Eurozone is experiencing a nascent but modest recovery, with an expansionary monetary policy and declining oil prices, which is boosting consumer and business confidence.Impacts of Falling Oil Prices and Geopolitical tensionsGDP growth in Russia was just 0.6 percent in 2014, compared to 3.5 percent in 2012 and 1.3 percent in 2013.Looking ahead, the baseline scenario calls for a sharp recession in Russia, with a projected contraction of 3.8 percent in 2015 and 0.3 percent in 2016. This forecast is based on expectations of an ongoing slump in oil prices (oil prices remaining in the US$50-60 range) and no immediate resolution of geopolitical tensions.The flexibility introduced into the exchange rate regime (the ruble has depreciated nearly 40 percent over the last year) has allowed the country to avoid a balance of payments crisis and has facilitated rebalancing of demand and production away from imports and toward domestic products and exports.Countries in the South Caucasus, Eastern Europe, and Central Asia have been hard hit by the downturn in Russia and the oil price shock, directly and indirectly due to lower oil revenues, or a decline in remittances, and trade. Growth rates in 2015 are expected to be half those seen in 2014 in the South Caucasus and Central Asia, while Eastern Europe, which includes Ukraine, is expected to fall further into recession. Benefiting from the Eurozone linkEU-Central and South Eastern Europe (EU-CSEE) countries are expected to see growth remain roughly the same in 2015 as in 2014 – about 2.7 percent – which is a significant improvement from the previous two years when growth was very modest (0.5 percent in 2012 and 1.2 percent in 2013), but it still remains far below potential. Unemployment rates remain stubbornly above 10 percent in many EU-CSEE countries and consumption growth is sluggish.Economic growth in the Western Balkans is expected to be a modest 1.2 percent in 2015, up from 0.7 percent in 2014 as a pick-up in net exports is expected to offset slowing investment and consumption. The Western Balkans still remain heavily burdened by the lack of new credit, and non-performing loans are the highest in the ECA region (above 16 percent). In Turkey, growth slowed to 2.9 percent in 2014, but is expected to increase modestly to 3 percent in 2015.Overall, these countries close to the Eurozone are seeing a pick-up in consumer and business confidence with reduced fears of deflation with quantitative monetary policy easing, a fall in oil prices, initial signs of a pick-up in industrial production, and, at least to date, limited spillover from the financial turbulence in Greece and uncertainty over Ukraine. Going forwardGiven the weaker buying power of many households in the region, poverty rates are expected to rise in several countries. This is a reversal of the downward trend toward lower poverty rates across the region. Poor households in oil-exporting countries and remittances-receiving countries are hit by higher import prices due to devaluations, the disappearance of jobs in construction and other non-tradable sectors, and because of fiscal pressures. This highlights the need for a quick adjustment to the new economic reality. Only if countries seize new opportunities in tradable sectors, can the deterioration of poverty rates be stopped.Exchange rate adjustments, along with prudent monetary policy to keep domestic inflation under control, will help countries regain competitiveness in global markets in the Eastern part of the region. For the EU-CSEE part of the region, projected low oil prices and monetary policy easing in the Eurozone should continue to help to mitigate the impact of low capital inflows and remaining uncertainty, including that arising from high debt levels, vulnerabilities in the banking sectors, geopolitical tensions, and Greece’s current financial turbulence.“The bottom line is that countries are performing the rebalancing act to the ‘new normal’ in which they have to seize new opportunities to expand export sectors,” said Hans Timmer, Chief Economist in the World Bank’s Europe and Central Asia region. “This is very much true for oil-exporting countries, but also for countries in the western part of the region that have experienced depreciations and low capital inflows. Ongoing reforms to improve the business climate are key to permit expansion in these sectors. Moreover, steady financial sector and macro management is critical, particularly in dollarized economies. Postponement of the adjustments needed for the rebalancing can be very costly and may backfire.” Show Less -
Over recent years, Turkey has seen steadily increasing female labor force participation, albeit from very low levels. Gains in education have been moving more women into the labor force, confirming wh... Show More +at we see in other countries.Women who invest more in their education are more likely to work, as jobs matching their skills become available. Many have found jobs in Turkey’s expanding service economy. Growing aspirations to enjoy a modern middle-class life style have provided an additional push for women to enter and remain in paid work.But a new concern has risen to prominence in the domestic debate over women’s economic empowerment: Could the expansion of job opportunities for women precipitate a decline in fertility?Conservatives argue that safeguarding the family and ensuring that Turkey’s fertility does not fall below replacement should be priorities. Promoters of gender equality see a danger that the pro-natalist rhetoric may thwart the limited progress women have made in Turkey’s labor market.A balance between family and workThis is a false dichotomy in our view. Policy has a big role to play to ensure that women do not have to choose between having children and earning an income, and developing their professional careers.Indeed, getting the balance right is critical to ensure that Turkey experiences a healthy demographic transition and completes the transition to high-income status that the country rightly aspires to.A quick international comparison reveals where the concern over declining fertility comes from. It took Turkey only 10 years to go from nearly three children per woman to the current level — just above the rate that would stabilize the population in the long run. That same process took over 50 years in Europe (Figure 1).Results from the most recent Demographic and Health Survey show that fertility has stabilized at 2.26 children, a level similar to the 2.23 children observed in 2003.Nonetheless, the Turkish government is worried that, based on past trends, the decline in fertility may resume. Better-educated women have tended to have lower fertility and female education levels have rapidly increased over the past 15 years.Turkey’s government is not alone in aiming for higher fertility rates. Policy makers in emerging markets want to halt the decline in fertility to lengthen the “demographic window of opportunity,” during which dependency ratios remain low and a growing labor force boosts economic growth.But these are the same broad economic objectives behind the drive for higher female labor force participation in many countries, including Turkey.Indeed, estimates suggest that because Turkey’s female work participation rate is well below its OECD peers, if Turkey was to have no gender inequality in labor force participation its per capita income may be increased by as much as 22% bringing it up from its current level of $10,970 to about $13,383.The snag is that the majority of Turkish women do not return to the labor market after marriage and childbirth. In aiming for more children, would Turkey need to forego the economic as well as the broader social gains of greater female labor force participation?Turkey’s new policy to address working womenThe country’s new Program for the Protection of the Family and Dynamic Population Structure aims to answer such concerns. Three key interrelated policies stand out among the 37 different parts of the program.The first is a “Maternity Gift” measure, paying cash for a couple’s first three babies – Turkish Lira 300 ($113) for the first born, TL 400 ($150) for the second and TL 600 ($226) for the third. This initiative is similar to baby bonus programs that have been tried and tested in a number of other countries.The second measure is that parents (both men and women) will be offered the right to paid part-time work all the way through to when their child starts primary school. Differing lengths of state subsidy to the families’ wages would depend on the number of children – a policy similar to the one recently announced by a private company for its employees globally.Get The Globalist’s latest headlines in your email inbox three times a week. Sign up here.The third measure is another big policy push on increasing access to affordable quality childcare for families. Such care currently remains at extremely low levels in Turkey and continues to be identified as a constraint to women’s labor force participation.Experience with policies in other countriesWhat does the experience in other countries say about the likely success of this new policy initiative?International evidence from 18 OECD countries suggests that a comprehensive policy package to support working parents during their children’s early years is needed. That policy would reconcile women’s choice about having children with their continued attachment to the labor market.Of all the policies studied, however, the provision of childcare services for children starting under the age of three and continuing until the child’s entry to primary school has the largest potential to influence fertility.Access to childcare also has a larger potential to influence women’s decisions to enter and return to the labor market after childbirth. It is thus extremely good news that Turkey’s program recognizes the importance of better and affordable childcare.Given how far Turkey is behind international benchmarks in this regard (See Figure 2), there is much room to improve, which should help both stabilize fertility and boost female labor force participation.It’s really about childcareCompared to the importance of childcare, evidence on the other two prominent components of the program is more mixed. While targeted cash bonuses can influence the timing of births, they tend not to increase the total number of children and, depending on the amount of the payment, can even have a negative effect on maternal employment.In addition, the international evidence on policies that increase mandatory access to part-time work for women and men is inconclusive. While women in particular may welcome the option to work part-time, a right to part-time work after childbirth may deter employers from hiring women in the first place.Against this background, the recent debate in Turkey should be welcomed. Our surveys indicate that the majority of Turkish women desire to have at least two children.With the right policy package in support and, in particular, with a focused expansion of childcare and early childhood education, women can continue to enter the labor market.That will allow them to enjoy professional development and economic empowerment as well as to provide economic benefits to their families and to their country as a whole.Figure 1: The precipitous decline in fertility in emerging market economiesSource: World Bank, World Development Indicators Figure 2: Average enrolment rate of children aged 3-5 years of age in pre-school educationSource: OECD (2014), OECD Family Database, OECD, Paris Show Less -