TURKEY’S INEVITABLE RECESSION – PART I

TURKEY’S INEVITABLE RECESSION – PART I by Claudio Grass

Turkey has been almost constantly in the news over the past year, as troubling headlines about its economy and political situation continue to pile up. In a currency meltdown that escalated last summer, the Turkish lira has plunged by nearly 40%, threatening the Turkish economy as a whole. In January, inflation topped 20%, with skyrocketing food prices having an especially severe impact on the population. At the same time, unemployment hit 14.7%, its highest level in a decade, and a figure that’s only expected to rise further, as the Turkish economy is projected to contract by 2% in 2019. Politically, the country’s intense friction with the US, as well as its internal upheaval, have also provided plenty of reasons for concern and clouded its outlook going forward.

An artificial boom and a very real bust

After the hotly contested and high-stake local elections at the end of March delivered severe blows to the Erdogan regime, the prospects of further instability were soon solidified. Erdogan, already in power for 18 years, is now pushing for a rerun of Istanbul mayoral election, following his party’s narrow defeat. It is precisely this timing, of a political inflection point combined with a recession, that makes the situation in Turkey all the more precarious.

For the last two decades, the country’s economy has been instrumental to the expansion and consolidation of power for Turkey’s President. However, the adoption of populist monetary policies and the artificial, debt-fueled growth has become increasingly unsustainable, as is usually the case. As the cracks are now apparent in the country’s economy, support is also at critical lows for the ruling party. In the midst of a recession, with further political friction on the horizon and a potential rerun in Istanbul, investors are justifiably concerned that political goals will overshadow the urgent need to resolve the economic woes of the country. The tough measures needed to stop the lira’s death spiral and to control the toxic debt ticking bomb, are unlikely to be winning electoral arguments.

The Turkish President is, after all, known for his interference in the economy and the private sector, while the central bank itself has lost credibility, as its independence has come under widespread doubt. Just before this last election, for example, it used its reserves to prop up the lira, with the relevant published data revealing that its foreign exchange reserves declined more than $2 billion in the week prior to the vote. According to rating agency Moody’s, gross and net reserves were “already at very low levels.”

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Rory Hall, The Daily Coin. Beginning in 1987 Rory has written over 1,000 articles and produced more than 300 videos on topics ranging from the precious metals market, economic and monetary policies, preparedness as well as geopolitical events. His articles have been published by Zerohedge, SHTFPlan, Sprott Money, GoldSilver, Silver Doctors, SGTReport, and a great many more. Rory was a producer and daily contributor at SGTReport between 2012 and 2014. He has interviewed experts such as Dr. Paul Craig Roberts, Dr. Marc Faber, Eric Sprott, Gerald Celente and Peter Schiff, to name but a few. Don't forget to visit The Daily Coin and Shadow of Truth YouTube channels to enjoy original videos and some of the best economic, precious metals, geopolitical and preparedness news from around the world.