In absolute volume terms, Turkey was the third strongest growing soft drinks market in the world last year, generating 1.6bn litres of new business, according to data from Euromonitor International. Only China and Mexico, with yield increases of 4.5bn and 2bn litres respectively, performed better. But, with the global financial crisis pushing Turkey's economy into a forecast contraction of over 5% this year, what is the soft drinks prognosis going forward? Rob Walker, senior non-alcoholic drinks analyst at Euromonitor International, investigates.

In the months following the collapse of Lehman Brothers last September, Turkey's economy went much the same way as other high-flying second-tier emerging markets, specifically into a downward freefall, with investors fleeing like rats from a sinking ship. Manufacturing slumped and unemployment surged. For the non-alcoholic beverage industry, which had been enjoying a five-year run of double-digit annual growth, it was a bitter pill to swallow. Indeed, on paper, it looked like a return to the dark days of the first quarter of 2001, when the stock market lost half its value and the economy was dumped into a sudden, full-scale financial crisis. In that year, Turkey's soft drinks market generated less than 1% volume growth compared with 12% the preceding year.

Going on the experience of Turkey's last financial crisis, there would seem, therefore, little to cheer about in 2009. But that would be to miss a crucial point, namely that Turkey's economic fundamentals, and its banking system in particular, have been strengthened significantly in the intervening period. In fact, the economy is now rebalancing more steadily and at a faster pace than most other second-tier emerging markets. Critically, exports fuel less than 20% of domestic income. Hence, the relative health of the economy is far more dependent on domestic over external demand. And government stimulus packages, notably interest rate cuts and tax breaks, are starting to propel a return of consumer confidence, and this, in turn, is triggering a return to growth in demand. Against the odds, Turkey, it would seem, is on the road to recovery, albeit a rocky one.

The 2009 half-year results for Coca-Cola Içecek (CCI), which trades on the Istanbul Stock Exchange, have given further credibility to the return of consumer confidence in Turkey. CCI, a Coke anchor bottler, for whom Turkey accounts for around three quarters of business, posted a 14% hike in volumes over the corresponding January to June period last year, with total sales reaching some 276m unit cases. Volume sales exclusively in Turkey, meanwhile, climbed by 5% to 204m unit cases, which is an impressive showing in a recession-hit market. The performance is even more noteworthy when you consider that the carbonates division was in contraction for the first five months of this year.

Indeed, carbonates only returned to growth in June, according to sources at CCI, with the sweet spot of the half-year growth curve coming almost entirely from the company's non-carbonated soft drinks portfolio. Leaf tea was also a new driver of volume, the upshot of a smart beverage diversification move in September last year, when CCI acquired 50% of Dogadan and initiated sales and distribution of its hot tea products throughout the country.

Soft drinks remain, of course, the bread and butter business for CCI, and the company will be hoping that carbonates, enriched by the addition of Coke Zero last year, will continue to generate growth over the second half of the year. In 2008, the carbonates category as a whole in Turkey added some 370m litres of new business. And a bullish 306m litres of absolute growth is projected for 2009, according to Euromonitor International's latest forecast data. Bottled water has also been identified as a big volume winner, with sales forecast to increase by over 500m litres for the full year.

The anticipated surge of bottled water reflects a strong demijohn (19-litre) HOD consumption culture, with this bulk format fuelling around 80% of volume. It is, moreover, a category that has substantial room for growth, due in large measure to a lack of safe potable water across much of the country. Crucially, a new generation of savvy young adults in Turkey is increasingly concerned about the quality of its tap water. Hence, significant investment in the HOD/bulk category is likely over the short to medium term.

Turkey is not, of course, out of the woods yet. The Government's reluctance to seek a leg up from the IMF and its strong focus on short-term stimulus packages over long-term fiscal discipline might rebound negatively beyond 2010. It is fair to say now, however, that the stimulus packages are bearing fruit. And, as a result, the non-alcoholic drinks industry is finding its feet quicker than many had expected.