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Eco Emerging

Türkiye: Fragile financial stabilisation
17/01/2023 • By François FAURE

Türkiye has enjoyed a period of financial calm since mid-2022 with exchange rate stability relative to the first half of the year, lower risk premiums and bond yields. Growth stagnated in Q3 2022, but monthly inflation slowed and the economic indicators available for Q4 2022 continued to be positive. For 2023, a slowdown is inevitable given the weaker levels of activity expected from the country’s main trading partners [...]

Charts of the Week

Turkey: consumption on credit
08/12/2022 • By François FAURE

In Turkey, growth has held up well (+4% year-on-year in Q3 2022) despite the rise in inflation. Consumer spending was the main supporting element, with an increase of 18%. However, the acceleration in inflation (from 19% year-on-year in Q3 2021 to 74% in Q2 2022) led to a contraction in the wage bill in real terms up to Q2 2022, despite a strong recovery in employment. Since mid-2022, inflation has continued to accelerate (+84 [...]

EcoTV Week

Turkey: on the razor's edge
22/07/2022 • By François FAURE

Turkey's economic situation continues to offer a stark contrast, with resilient growth on one hand and soaring inflation, dwindling foreign exchange reserves and a depreciating lira on the other. In short, the reed bends but does not break. Some explanations in this new issue of Eco TV Week.
Eco Emerging

On the razor’s edge
08/07/2022 • By François FAURE

The economic situation in Turkey offers striking contrasts between (i) sustained growth until Q1 2022 and stubbornly huge inflation, (ii) much greater confidence among companies than among households, (iii) a primary budget surplus and a deteriorating current account deficit due to the surge in the price of energy, and (iv) domestic borrowing conditions for the State at an unprecedented negative real rate despite massive outflows from portfolio investments [...]

EcoTV Week

The new Turkish economic policy
28/01/2022 • By François FAURE

The Turkish monetary & exchange rate policy in times of financial instability: economic rationale and consequences.
Charts of the Week

New financial tensions
30/11/2021 • By François FAURE

Over the past 15 days, the Turkish lira has depreciated 21% against the euro, including a single-day decline of more than 10% on 23 November. At the same time, 10-year government bond yields have risen above the 20% threshold. This bout of weakness was triggered by 1) another cut in the central bank’s key rate on 19 November, from 16% to 15%, despite surging inflation, which reached 19 [...]

Eco Emerging

Growth and inflation on the menu
12/10/2021 • By Stéphane Colliac

Turkey is enjoying strong economic growth in 2021, following the credit-driven stimulus implemented in 2020. The cumulative performance over 2020 and 2021 has allowed the country to close the growth gap that resulted from the series of shocks between 2018 and 2020. Investment and the industrial sector have thus regained their previous size. Foreign currency reserves have recovered from the low levels they reached in 2020 [...]

EcoTV Week

Growth in Turkey: Too much of a good thing?
10/09/2021 • By Stéphane Colliac

The Turkish economy has experienced a stellar growth during the 2nd quarter of 2021, compared with the same quarter a year earlier. A recovery is normal since the country experienced a wide lockdown in 2020Q2, but its size is impressive. However, the Turkish economy is facing at the same time a strong inflation that reached 19% in August 2021.
Eco Emerging

Growth amid imbalances
15/04/2021 • By Stéphane Colliac

The November 2020 announcement that monetary policy would move in a new direction had tamed financial tensions. However, as the Central Bank Governor was removed in March 2021, uncertainty came back. Exchange rate depreciation pressures have reappeared and interest rates and risk premiums have risen. Growth support will be the top policy priority, but at the price of maintaining significant macroeconomic imbalances [...]

Eco Conjoncture

Turkey: ending the stop-and-go growth?
12/01/2021 • By Stéphane Colliac

In third-quarter 2020, Turkish GDP had already returned to pre-Covid levels. Turkey’s economic recovery can be attributed to massive policy support – both fiscal and monetary –, which also involves risks. Inflation is significantly above 10%, and unlike many other emerging countries, the current account swung into a deficit again, which triggered a sharp depreciation in the Turkish lira. Faced with rising tensions, President Erdogan voiced to change the direction of economic policy [...]

Eco Emerging

Leaning against the wind
05/10/2020 • By Stéphane Colliac

Since late spring, Turkey has enjoyed a rapid, buoyant recovery. This is rather typical for an economy regularly hit by external shocks that are magnified by capital outflows. Turkey has managed to bounce back yet again thanks to strong economic policy support. The bad news is that it is accumulating several imbalances, including another significant current account deficit and a sharp increase in credit growth, which is accelerating faster than during previous recovery phases [...]

Eco Week

A still resilient pulse indicator
23/04/2020 • By François FAURE

Our Pulse for Turkey shows good resilience of the economy until February/March. So far, the government has not imposed a generalized lockdown therefore the supply shock is less severe than for other European economies. Besides, the Central Bank has lowered its policy rate by 200 basis points since mid-March and one third of the support program announced by the government (2.3% of GDP) has been already spent at mid-March. We expect recession to be limited to -2% for 2020 as a whole.

Eco Emerging

Prepared for (soft) landing?
13/04/2020 • By Stéphane Colliac

The Turkish economy is facing problems of a sort it has dealt with in the past: a global crisis, that will trigger a sharp fall in exports, coupled with a contraction of external financing. Unlike in 2018, Turkey’s economy does not appear to be overheating, whilst the fall in oil prices and the emergence of a current account surplus are two factors that will reduce the risk [...]

Eco Week

A resilient Turkish economy
12/03/2020 • By François FAURE

Our indicators show a rather resilient Turkish economy given the global slowdown and uncertainties linked to the military operation in Syria. Indeed, real GDP rebounded markedly in Q42019 (+5.9% yoy compared with 1% in Q3) thanks to a sustained private consumption. Moreover, business confidence has recovered [...]

Eco Emerging

Avoiding a relapse
14/07/2019 •

Mired in stagflation, the Turkish economy might have to forego its “stop and go” tradition given the need for deleveraging in the private sector and a less favourable international environment. Disinflation continues but remains vulnerable to bouts of forex volatility. (Geo)political risks and the dollarization of the economy make monetary policy management more complex. A swelling public deficit and uncertainty about the direction of fiscal policy are sources of concern [...]

Charts of the Week

Turkey: FX roller-coaster
08/05/2019 •

After a precipitous 42% decline against a euro-dollar average between January and August 2018, half of which occurred in the month of August alone, the Turkish lira (TRY) rebounded by 15% in September-December, following a massive interest rate hike by the Turkish central bank (CBRT). Nonetheless, the TRY has depreciated again by 10% over the past two months amid stagflation. FX volatility has spiked owing to uncertainty about the true level of “free” FX reserves [...]

Eco Emerging

Large-scale manoeuvres
24/01/2019 •

With the approach of municipal elections on 31 March, which will be another key test for the government, major manoeuvres have been launched on both the macroeconomic and geopolitical fronts to stimulate activity and advance a foreign policy agenda (notably in Syria) at the expense of diplomatic tensions with the US. The financial strain has soothed since the currency crisis in August 2018, but cyclical conditions have deteriorated [...]

Eco Emerging

The tight-rope walker
19/10/2018 •

A currency crisis broke out in August. Beyond (geo)politics, the main reasons behind the collapse of the TRY are the worsening in Turkey’s macro fundamentals and erosion of the credibility of its policy mix. The authorities have limited room for manoeuvre and announced a tightening of economic policy, which has led to some respite in the financial markets. Reconciling with the West is also required to regain investors’ trust [...]

Eco Emerging

A post-election phase bearing risks

13/07/2018 •

After the re-election of President Erdogan and the AKP-MHP alliance’s victory in the 24 June parliamentary election, the markets welcomed the end of political uncertainty for the time being. Still, against a background of tensions in emerging markets and increasing geopolitical risk, investors are worried about Turkey’s economic and political trajectory [...]

Charts of the Week

Turkey: There is still room for regaining investors' confidence
27/06/2018 •

Following President Erdogan’s re-election and AKP-MHP’s victory in the parliamentary elections on June 24th, the markets reacted positively, welcoming the end of political uncertainty in the short term. But the relief was short-lived. Over the past three months, the USDTRY has depreciated by 15% and the Istanbul stock exchange has dropped by 18%. Meanwhile, 2-year government bonds yields have climbed by 450 basis points (bps) to 18 [...]

Turkey is among the 20 world largest economies (and countries (84 million inhabitants). The country has diversified trade relationships with Europe, the Middle East and Asia.

Real GDP growth averaged 5.7% from 2002-2018, the result of deep structural reforms in the aftermath of the 2000-01 crisis. However, this performance was increasingly achieved through growing policy support and related macroeconomic imbalances. The country has experienced several boom-bust cycles during the last years, with two severe economic shocks: a currency crisis followed by a recession period in 2018, and the Covid outbreak in 2020 Q2. The country has coped with the COVID-19 outbreak through strong policy support (large public debt and domestic credit increases). Significant inflation (above 10% during the past 4 years, with no sign of disinflation) and the low level of foreign reserves put significant pressure on the exchange rate. Moreover, structural current account deficits are increasing its vulnerability to debt refinancing and exchange rate pressure.