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Turkey’s Economic Situation Is Not As Bad As It Looks Like

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There are many reports have been hovering around Turkey’s economic situation, whether before the failed coup or even after the coup. Many are saying that the economy is in a state of crisis. Yet, there are evident signs of stabilization.

Crashing Currency

One of the main things that everyone is talking about is the Turkish Lira, which lost more than 24% of its value in 2015 and crashed by another 20.9% in 2016.

Despite the fact that the Turkish Lira also lost around 11.8% of its value at the beginning of this year, reaching a record low against the Dollar at 3.94, it recovered its entire loss of this year, and now its back to 3.49 rising by 1.47% YTD.

However, the decline in Turkish Lira was necessary especially after the tensions with the European Union and the crisis in Syria, which had a clear impact on Turkey. Turkey had cut the ties with Syria and partly with Iran, while the refugee camps are costing the government a significant amount of its budget annually.

Such move has led the government to intervene in the Central Bank’s policies. In 2014, the central bank was forced to hike the interest rate to 10%, before cutting it back to 7.45% in 2015. However, in 2016, the bank increased the rates once again on falling Lira back to 8%. In July the estimates point to no change as well.

 Growth, Inflation, and Unemployment

Despite all of the talks about a crashing economy in Turkey, numbers are still looking good.

Turkey’s YoY GDP advanced for the second quarter in a row, ending the fears of a possible recession. In Q3 of last year, the YoY GDP posted the biggest decline since the financial crisis.

However, in Q4 of last year, it managed to add 3.5% while it spiked to 5% in Q1 of this year, which is the fastest growth rate since Q2 of last year.

Inflation indeed spiked higher on falling currency and the state of crisis that occurred right after the coup. Inflation jumped all the way to almost 12% this year, which is the highest inflation rate since the financial crisis. Yet, the estimates are on the downside for this year. In July, estimates are pointing to 9.01% and 8.75% in August.

At the same time, unemployment spikes all the way to 13% in January of this year. This is also due to the mass layoffs right after the coup whether in government or private sectors.

There are signs of improvement, the unemployment rate is now lower to 11.7% since then, and the estimates are also pointing to lower unemployment rate for the month of May at 9.6% and June at 9.3%.

Worried Investors?

Not really, look at Istanbul stock market, it’s at a record high! You may consider that it happens due to the crashing currency. And you wouldn’t be completely wrong, but at the same time, the expansion is there.

Even before the Syrian crisis and the coup, the market was able to adjust to these events.

The only aspect that might be a negative factor is the government that keeps on intervening in the central bank’s policy.  That would be a mistake the government should not continue making.

Don’t Underestimate Turkey

As noted above, there are still a lot of talks about a crashing economy. However, Turkey is not a country with no resources.

The political situation there is now more stable than ever before, especially after the coup. At the same time, the government is enjoying the support of a vast majority of the population. At least according to the latest independent polls.

The Debt to GDP ratio is at 28.3%. Back in 2008, it spiked all the way to 43.8%. This is a success. Capital flows are also at the highest level since 2015.

Keep that in mind.


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