After years of being snubbed by the European Union, Turkey has turned to its immediate neighbors for economic enrichment. As a result, Turkey’s economy and exchange traded fund (ETF) could continue to see gains next year.

In the last couple of years, Turkey economy has been augmented by increased exports to its Middle East and north African neighbors, extending pipelines for transferring energy, more air traffic and a number of infrastructure projects, according to The Economist. (Does Turkey need more support?)

Turkey is starting to utilize the soft power of trade and historical links to stabilize the country’s position in the Middle East. Reform needed to meet EU membership has prodded the government to look inward and what resulted was a greater stability in the region.

The realignment of interests has allowed Turkey to gain greater ties with its Muslim neighbors, and the country help bridge the Western countries with the Middle East.

The European Commission estimated Turkey’s GDP will contract 5.8% this year, followed by a 2.8% growth for 2010 and a 3.6% growth for 2011, as stated in Hurriyet Daily News and Economic Review. The commission also expected public debt-to-GDP ratio to rise above 51% of GDP in 2011

The Turkish economy was constrained by exports and investments, which dropped 8.5% and 17.6% respectively, as well as a 5.3% decline in private consumption. The banking sector is well-capitalized but loan growth is decelerating, which could slow the recovery of private consumption and investment. High requirements for public sector borrowing may further limit credit for the private sector.

For more information on Turkey, visit our Turkey category.

  • iShares MSCI Turkey Invest Mkt Index (NYSEArca: TUR): up 83% year-to-date


  • Market Vectors Gulf States ETF (NYSEArca: MES): up 11.9% year-to-date


Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.