Financial volatility and political uncertainty crush the Turkish economy

For the first time in a decade experts suggest a contraction of 1.5%.  For the following year, a slight trend reversal, with growth of just over 2%.  Analysts highlight the risk of "recession with double relapse".  Fears for the central bank's independence.


Istanbul (AsiaNews) - For the first time in over a decade, the Turkish economy should contract in 2019, to then recover - slightly - and record modest growth in the following two years.  This is what emerges from a survey prepared by Reuters experts and published yesterday, which examines the studies of over 40 leading economists from around the world.

The provisional average indicates that the Turkish economy will register a 1.5% contraction for this year.  A figure that contradicts the (modest) government growth estimates released in recent weeks, which assumed an expansion of 2.3%.

In reality, the evaluations of the experts of the sector consulted between July 4 and 16  vary (and even a lot) between them: from a growth of 1% for the most optimistic, they passed to a contraction up to 5% for  darker forecasts.  At the same time, the growth forecast for 2020 is 2.4%, but is expected to improve in the following year with a plus 3.4%.

For the second and third quarters of the current year, a contraction of 2.5% and 1.1% should be recorded respectively.  The figure should return to growth in the last quarter, with a plus 1%.  Among the reasons, the experts warn, we find the extreme "financial volatility of the market" and "the great political uncertainty" that raise the risk of "recession with double spillover".

The last year-on-year decline recorded by the Turkish economy on an annual basis dates back to 2009, with a minus 4.7%.  From 2010 to 2017, the average figure stood at around 6.6% driven by development in the construction sector, thanks also to the low cost of money.  However, the Turkish lira crisis (down 30% against the dollar) caused a 2.6% contraction in the first three months of the current year, preceded by a 3% drop in the last quarter of last year.

The fall in the lira has triggered a surge in inflation, never so high in the last 15 years, limiting the purchasing power of companies and competitiveness on foreign markets.  Added to this are the political and diplomatic crisis with the United States and the deep internal social tensions, which then resulted in attacks and violence against Syrian refugees who were targeted as scapegoats for a general situation of malaise.

Last September, the central bank raised the official rate to 24%, in response to the currency crisis and has not changed the value since.  However, the recent dismissal of the governor has raised more than a bad mood among investors, critical of the institution's lack of independence.

President Recep Tayyip Erdogan, who calls himself an "interest rate enemy," fired Murat Cetinkaya on 6 July for not following his instructions.  Nevertheless, in the past few days his successor Murat Uysal has hinted at rate cuts.  Economists surveyed for Reuters research predict that the central bank will eventually lower its benchmark rate to 22% by the end of the third quarter and 20% by the end of the year.