Blog posts tagged by tag: Turkey
Guest Author: Daniel Solomon, Economist, Euromonitor International
Turkey’s economy has deteriorated dramatically during the summer. The Turkish lira crashed by 33% in August 2018, bringing the total depreciation for 2018 to around 70%. Inflation in August reached 17.9% year-on-year, and the central bank raised its key interest rate from 8% to 17.75% during the summer. Both consumer and business confidence have dropped sharply. In September, Turkey’s central bank hiked interest rates once again to 24%.
The Turkish proverb “Zararın neresinden dönülse kârdır” can be loosely translated as “reducing losses at any point is always profitable ”. Simply put, it means that if one is on the wrong track, then the best course of action is to perform a U-turn, however painful or chastening it may be in the short run.
Economists and investors who have followed the tumultuous developments in Turkey in recent weeks must surely be hoping for the government and Central Bank to take the message to heart. Over the last month the lira has collapsed, driven by geopolitical tension with the U.S. and loose fiscal and monetary policy. This has led input costs to rocket and is saddling corporates with an ever heftier external debt burden.
24 June marked the culmination of President Recep Tayyip Erdogan’s long-held ambition: to become the most powerful Turkish leader since Atatürk, the man who founded the Republic of Turkey almost a century ago. His crushing victory in presidential and parliamentary elections ushers in a new chapter in the country’s history, cementing the shift to a presidential system of government which will place unprecedented power into the hands of one man. Erdogan will now be able to rule by decree, appoint ministers and senior judges, dissolve parliament and declare a state of emergency. In short, the levers of state are his to command.
The Turkish lira (TRY) came under intense pressure in late November as political strain with the U.S. intensified and tensions between President Erdogan and Central Bank officials regarding the country’s monetary policy path going forward became more acute. The latest slump in the value of the lira followed renewed pressure by President Erdogan on the Central Bank of the Republic of Turkey’s (CBRT) current policy stance. Erdogan argued in mid-November that Bank officials were on “the wrong path”, stressing that high interest rates were hindering economic growth and fueling higher inflation expectations. This was, however, at odds with the overarching view of analysts, who underlined the need for Turkey to tighten monetary conditions in a bid to rein in soaring consumer prices.
The consequences of July’s coup attempt, numerous terrorist attacks, a weak currency and heightened political uncertainty took a toll on the Turkish economy in the third quarter of 2016. Revised data show that GDP contracted for the first time in seven years, disappointing the markets and contrasting the previous quarter’s expansion. On balance, FocusEconomics panelists expect that the economy will expand 2.7% in 2017, which is down 0.3 percentage points from last month’s estimate.
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