The Turkish Statistical Institute will today release economic growth data for 2019 that will underline Turkey’s recovery from the 2018
The Turkish Statistical Institute will today release economic growth data for 2019 that will underline Turkey’s recovery from the 2018 recession.
Annual growth for 2019 is projected at 0.6%. A strong 4th quarter performance indicates that Turkey has recovered from a 2018 currency crisis that caused a recession in mid-2019. Most economic growth has been attributed to public spending and drastic interest rate cuts by the Turkish central bank—including one last week—that have boosted domestic consumption.
However, the same policies that facilitated the recovery in growth may be contributing to increasing economic instability in the country. Steady inflation, currently at 12-13%, combined with President Recep Tayyip Erdogan’s uncompromising plans to lower interest rates below 10% are expected to result in negative real interest rates, which incentivise risky, high-return investments.
In addition, the Turkish central bank’s unsustainable and costly interventions to prevent the inflationary depreciation of the lira may compromise Turkey’s ability to respond to further crises.
These policies, which have scared off many foreign investors, may have temporarily salvaged Turkey’s short-run growth. However, another reduction in demand and foreign investment—possibly spurred by the regional spread of coronavirus—could significantly paralyse the economy, potentially setting the stage for another crisis in the medium-term.
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