A contradict­ory future

Dünya Executive - - COMMENTARY - Taner BERSOY Columnist

In recent weeks, two contradict­ory outlooks on the Turkish economy have emerged. There are some assessment­s that predict the economy will continue its fast growth in the first quarter of 2018. On the other hand, some say we are experienci­ng developmen­ts that hearken back to the turmoil of the old days.

Commentato­rs were expecting a low rate of growth in 2017 but in the first two quarters the rate was around 5 percent, and in the third quarter it was even higher. All the pessimisti­c prediction­s missed the mark. That boosted the credibilit­y of the optimists. But a deeper look showed that those buoyant early months were in large part due to monetary incentives and the large base effect – fleeting moments at best. There were also some commentato­rs who fell somewhere in the middle, saying that there was reason for optimism but that it was not sustainabl­e. But the image obscured the truth, as it always has, and we ticked along as though nothing bad had happened.

Prediction­s fed by the optimistic perception had led to an expectatio­n of a decline in inflation, allowing the Central Bank to cut rates to some extent. By March, there was no such improvemen­t in inflation. Hence, the Central Bank held the rates unchanged. After inflation data, balance of internatio­nal payments was released. There were no positive indication­s for the economy from this data either. The current account deficit, which was $2.7 billion in March last year, increased to $7.1 billion in the first quarter of 2018. The cumulative deficit for 12 months, on the other hand, increased from $33.6 billion to $51.6 billion.

Under these c rcumstance­s, we w ll clearly have to offset th s def c t w th borrow ng

The pessimism related to high inflation and the current account balance has begun to overtake the optimists. Thus, interest rates and foreign exchange rates have in- creased. The third strike was from Moody’s, which downgraded Turkey’s credit rating, and this trio led to worsening conditions. The “Optimist perception” that started in the third quarter of last year gave way to panic. A sell-off wave started in markets and that pushed financial prices up.

No doubt that these improvemen­ts damaged the perception of the Turkish economy significan­tly. The contradict­ions in the perception of the economy increased but the discourse didn’t change. So let me have the last word: Despite the current discourse, I believe the Turkish economy is on the verge of turmoil. But I hope we won’t go beyond the verge.

Newspapers in English

Newspapers from Turkey

© PressReader. All rights reserved.