Economists expect EU recovery to counter Iraq export losses

Turkey can offset export losses caused by geopolitical tension in Iraq with rising exports to the EU thanks to recent recovery observed in European countries, according to economists.

Turkey's exports to Iraq stand at US$12 billion annually, which makes it Turkey's second-biggest export market. Official data suggest that exports to Iraq fell by 21 percent in June, which would cause a minus-2.5 points effect on Turkey's overall export growth.

However, Christian Schulz, senior economist at Germany-based Berenberg, said that there is a recovery in Europe even it varied between countries, suggesting the worst part of the crisis was over.

Schulz said that a strong recovery in Europe would definitely contribute positively to Turkey's economic climate, but claimed that the European recovery was still too weak to have a major effect.

Arjen van Dijkhuizen, a senior economist in emerging markets at ABN AMRO said the crisis in Iraq was offset by the recovery in Europe, the biggest export market of Turkey, as seen from the positive contribution of exports to GDP figures in first quarter of the year.

On 15 July, Turkish finance minister Mehmet Simsek said that geopolitical challenges posed a negative risk for the country's growth outlook, adding that Europe had the potential to offset the effects of the Iraqi crisis to meet a year-end four percent growth target.

Ratings agency Moody's cautioned Turkey on 30 June that the crisis triggered by fighting in Iraq might pose a downward risk to its current account deficit, growth and inflation.