Now economists suggest a well-managed rate policy and better-implemented structural reforms should be at the heart of the country’s “new year resolutions."
"2015 will be a year where policy mistakes and late reactions will be more costly compared to other years," says Burak Saltoglu of Istanbul’s Bogazici University, while Burak Arzova, an economist and newspaper columnist, describes the new year as "harder than the previous one."
World finance centers anticipate a possible rate decision from the U.S. Federal Reserve, possibly in the second quarter, a tightening of its monetary policy which will be a "turning point" in terms of global liquidity.
"This risk argues for monetary policy to remain prudent as further exchange rate weakness would quickly feed through into higher inflation," says Martin Raiser, World Bank Turkey director.
Arzova, a columnist for the Turkiye daily, sees the Fed's decision as the biggest risk in the new year and is in favor of a more reservist monetary policy.
"I would act more cautiously to be able to control currency, if I were the central bank governor," says Arzova.
Senior Turkish government officials, including President Recep Tayyip Erdogan, repeatedly declared that they would prefer a lower interest rate to boost constant growth; since the Central Bank increased rates to curb currencies’ soaring rates against the Turkish lira in early 2014.
"I would resist to any pressure for lower rates and be very sensitive about this," Arzova claims, predicting that the government will demand further cuts in rates.
"Given the level of the corporate sector's borrowing requirements, short-term exchange rate volatility should be managed very well," Saltoglu says.
Saltoglu's solution relies on "macro hedge funds" to be put forward to avoid risks in the finance sector.
Burcu Unuvar, an analyst at Yasar University in Izmir, thinks there is still time for taking "structural measures" ahead of the Fed's call, as it might delay its expected sharp boost in rates.
The Turkish authorities have already been watchful of developments as they took steps in order to increase the savings rate, decrease energy dependency and boosting R&D investments, says Saltoglu.
Prime Minister Ahmet Davutoglu in November announced an extensive economic action plan aimed at increasing the production capacities of the real sector and limiting Turkey's dependence on imports.
Reform plans include targets such as boosting local production to rely less on imports, maintaining more energy efficiency and local energy production as well as strengthening innovation.
Turkey aims to increase its GDP to $1.3 trillion in 2018 and to $2 trillion in 2023 from $820 billion in 2013, while reducing the unemployment to 7.2 and 5 percent respectively.
According to Raiser, the challenges ahead were "well captured" in development and action plans since 2013. However, Raiser claims, the investors that Turkey aims to attract to boost growth will wait until they see concrete steps and further progress.
High inflation troubled economic leaders in 2014 as a pre-revision 5 percent target had been missed; year-end inflation stood at 8.17 percent due to high food prices.
The Turkish Central Bank raised its inflation rate expectation to 8.9 percent in September, while expecting 6.3 percent in 2015. However, this target might not be met, according to another economist.
Burcu Unuvar estimates that inflation might reach up to 7 percent in the new year, despite the positive effects of plunging oil prices; Arzova predicts that the fall in the oil will not be sustainable and that prices will rebound in the near future.
Martin Raiser says that high inflation would mean that "the competitiveness gains of a weaker currency are fast being eroded and incentives to save in Turkish lira are undermined, despite the surge in prices was coming down again.”
Oil prices in the first days of the year saw new lows to under $50 per barrel in the second half of 2014, a development that would benefit Turkey's high inflation and its account deficit as the country depends on imported energy sources, according to Arzova.
The Turkish current account deficit decreased by 40 percent in the first 10 months of 2014 compared to the previous period and it is currently 4.5 percent of the total GDP, based on Central Bank data released in December.
Despite the decline in the account deficit with a moderate increase in exports, Turkish exporters still bear risks as the recovery in the European economies – Turkey's biggest trading partner – is still fragile, coupled with high security risks from turmoil in Syria and Iraq, according to Raiser.
"Structural reforms are the key", says Raiser, in order to enhance competitiveness of the Turkish economy.
However, according to Arzova, Turkey faces another risk due to the euro and dollar exchange rate, as the European currency fell to a record low against the dollar.
"The issue that our imports are in euro, while our exports are in dollars puts our external balance at risk," says Arzova to explain the falling profits of Turkish traders due to global exchange rates.
Arzova also suggests a hedge fund to cover possible losses of traders which can arise because of sudden currency slides.
Productivity is another key point at World Bank's remarks for both growth and employment. Turkey grew by 3 percent in the first three quarters of 2014, while unemployment went up to 10.5 percent.
Meanwhile, the Turkish industry index rose by 0.7 percent annually until November of 2014.
Raiser remarked that productivity has been "stagnant" in last years, as it has increased little since 2007 due to a restrained private investment through both local and foreign businesses.
"The challenge will be how to stimulate continued labor demand in manufacturing and services and to create sufficient 'good jobs'," says Raiser, after five years of "remarkable" standing in creating new jobs.
The Turkish economy created more than one million jobs on average, mainly in service sectors, in the last five years and, in the new year, it needs to continue this performance to employ its young generation, according to Raiser.
"The related policy priorities are to strengthen the innovation eco-system, improve the links between science and commercial applications, deepen and diversify capital markets, reduce the regulatory burden on businesses, and reassure investors of the government's commitment to arms' length regulation and the rule of law," added Raiser, summing up what might be considered as homework for the Turkish economy administration in the new year.