CONCEPT – TURKEY'S ECONOMIC CRISIS 2019

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 CONCEPT – TURKEY'S ECONOMIC CRISIS 2019

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• Recessionary trend : Growth contracted by 2.4 % in 2018 Q4 compared with the previous quarter, when it fell 1.6 %. The figures were worse than expected. As a result, Turkey’s economy grew at 2.6 per cent for the whole of 2018, from 7.4 per cent in 2017.
• Tough times : The last time Turkey faced a recession — defined as two consecutive quarterly drops in gross domestic product — under Mr Erdogan’s watch was in 2008 and 2009 in the wake of the US subprime mortgage crisis. Economists say that the current downturn has its roots in the row with the US in 2018, which prompted a severe sell-off of the lira that is likely to reverberate through the economy this year.
• Losing the elections : The deteriorating economic environment made it difficult for the Turkish leader to retain control of key cities in nationwide municipal elections in March 2019, losing Ankara and Istanbul. His ruling Justice and Development Party (AKP) has built 16 years of successive electoral victories on the back of fast growth and rising prosperity.
• Earlier warnings : The government had faced repeated warnings that a stimulus programme aimed at boosting growth after a 2016 coup attempt had caused the economy to overheat, leaving it vulnerable to sudden shifts in investors sentiment. A bitter dispute with US president Donald Trump over a jailed American pastor triggered just such a shift — pushing the lira to all-time lows against the dollar. 
• Chain reaction :

1. The depreciating currency piled pressure on a corporate sector saddled with foreign currency-nominated debt and sparked fears of contagion across emerging markets.
2. The high volatility forced the Turkish central bank to hike its benchmark interest rate to 24 per cent in September.
3. The move helped reassure investors and stabilise the currency, but sent shockwaves through the wider economy, triggering a plunge in bank lending and a slump in business confidence and consumer spending.
4. The AKP came to power after a 2001 banking crisis prompted the International Monetary Fund to come to the rescue and swept away the old political order.
5. Now high inflation, rising unemployment and the downturn would dent the party’s reputation for good economic management in the eyes of its supporters. The president has blamed the country’s economic woes on foreign powers.
6. Economists say that Turkey will struggle to replicate the swift recovery that followed previous crises. Banks have curbed lending as they deal with rising non-performing loans, limiting their ability to support growth.
7. The recession will be deeper and longer than previously given the balance sheet nature of this recession.
8. A more dovish stance by some of the world’s most influential central banks has lately supported Turkey, with delays to rate hikes by the US Federal Reserve and the European Central Bank helping to sustain flows of funds into higher-return, riskier markets.
9. Hence, any attempt to prematurely cut rates or adopt other stimulus measures can weigh on the lira and ultimately serve to undermine the purpose of improving sentiment towards Turkey.

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