The Wall Street Journal Columnist, Yeliz Candemir wrote an article on Turkey’s Economy.
Turkey’s economy contracted for the first time in seven years during the third quarter, official data showed on Monday, as mounting uncertainties since a failed summer coup crimped domestic demand and devastated key industries like tourism.
GROSS DOMESTIC PRODUCT IN JULY THROUGH SEPTEMBER SHRUNK BY 1.8 ANNUALLY
Gross domestic product in July through September shrunk by 1.8% annually, sinking deeper into negative territory than a 0.4% drop forecast by 10 economists in a Wall Street Journal survey and reversing Turkey’s resilient growth record since its latest decline in the third quarter of 2009.
The sputtering economy could emerge as one of the biggest challenges to President Recep Tayyip Erdogan’s goal of passing controversial constitutional overhauls that would consolidate executive powers in his office.
Mr. Erdogan, the most trusted politician in Turkey, with approval ratings above 50%, has led his ruling Justice and Development Party to back-to-back electoral victories since 2002, aided by a strong track record of 5% average annual economic growth. He is pushing a plan to endow his currently ceremonial office with executive powers similar to those in the U.S. and Russia through constitutional amendments that must pass a vote in Parliament and then a referendum.
However, tens of thousands of people have lost their jobs since the July coup attempt. Opposition politicians see a chance to lure voters to their side as weakening confidence in Turkey’s stability reverberates across the economy, which economists forecast to expand by less than 3% this year.
THE DATA SHOWS THAT THE ECONOMIC DOWNTRUN WAS DRIVEN BY A COLLAPSE
The data shows that the economic downturn was driven by a collapse in private domestic consumption, which tumbled by an annualized 3.2% in the third quarter.
Even soaring government spending, which jumped 23.8% in the same period, wasn’t enough to halt Turkey’s economic decline.
Turkey’s lira extended its losses after the data, sinking as much as 1.5% to 3.5495 a dollar—nearing its record low. The yield on two-year benchmark bonds rose to 11.1% from 10.94% while Turkey’s main BIST-100 Stock Index slumped more than 1% in intraday trading, before recovering to close slightly higher.
“We have taken necessary measures for this temporary contraction in the economy,” Deputy Prime Minister Mehmet Simsek said on Monday. Turkey’s economy czar sought to reassure investors, touting strong public finances and a healthy banking sector.
ECONOMISTS BROADLY DISAGREED WITH LONDON
But economists broadly disagreed, with London-based Rabobank analyst Piotr Matyswarning of further weakness in fourth-quarter GDP growth.
The Turkish lira has lost nearly a fifth of its value against the dollar this year, as the country has struggled with rising security threats. Suicide bombings by Kurdish insurgents and Islamic State, as well as a monthslong diplomatic rift with Russia, destroyed tourism revenue—a key economic driver.
A broader emerging-markets selloff also shook Turkey, where companies’ foreign-currency debt was at $294 billion in September, about 37% of GDP and one of the highest in developing markets.
In October, Turkey extended the state of emergency declared after the failed July coup. Turkish authorities have seized more than 500 companies with assets valued at more than $10 billion since then.
“Turkey needs normalization—immediately,” said Cansen Basaran-Symes, chairwoman of Turkey’s biggest industrialists and business group TUSIAD. She urged the government on Dec. 1 to end the state of emergency, saying it is leading to “a loss of confidence in the economy.”
So far, both conventional and unconventional monetary-policy tools have failed to stem the lira’s slide or boost economic growth.
Turkey’s consumer-confidence index dropped by 7% in November to 68.9—its lowest since July. The unemployment rate also remains persistently high at 11.3% as of August, the highest since January 2015.
In November, the central bank raised its interest rates for the first time in almost three years.
This month, Mr. Erdogan called on Turks to convert their foreign-currency savings in Turkish lira or gold to support the local currency as a patriotic duty.
Prime Minister Binali Yildirim last week announced measures such as extending some $70 billion in credit lines to small and midsize businesses, tax cuts and state subsidies to help stimulate job growth and boost economic activity.
Yet most analysts cautioned that the government measures appear to be short-term remedies. And with looming Fed action roiling global financial markets, most economists see more headwinds.
“We remain relatively downbeat on the growth outlook,” said William Jackson, senior emerging-markets economist at Capital Economics. “We are concerned about the impact of Fed tightening next year and beyond, which is likely to put the lira under further pressure, keep inflation high and lead to tighter monetary policy.”