Contradictions are escalating uncertainties

Global developments over the last days of 2018 point to a sharp increase in uncertainties for the future. Domestically, short-term political savings, which do not take into account this negativity, reduce the likelihood of improvement in expectations.

Internal conflicts in the U.S.

There is demoralization on a global scale and on the financial market front, and traditional seasonal assumptions are not functioning. Capital markets are experiencing hard sales in very low trading volumes; instincts to protect positions and balance sheets do not function due to insecurities, and economic expectations are worsening. Oil prices are falling to critical levels, which may lead to a change in all accounts due to the risk aversion. The concentration in the search for a safe harbor feeds the vicious circle. The emergence of domestic conflicts in the U.S. origin are aggravating this process.

Minimum wage and employment incentives clash with 2019 program

In Turkey, economic decisions contradict the path set by the New Economy Program, announced in September. The hundred-day action plan and economic measures announced last week indicate that the sensitivities to local elections have become a priority while negative trends in global conditions are not taken into account. The minimum wage, energy price cuts and investment and employment incentives do not seem to be consistent with the 2019 economic program: burning problems and instabilities that cause fragility are ignored. Geopolitical tests, which we will inevitably crop up under current conditions, increase the uncertainties considerably.

Those making decisions forget that trying to steer short-term expectations by ignoring entrenched problems is not the solution. Predicting when and in what ways short-term solutions will become an obstacle to long-term goals is getting more difficult to predict. From this point of view, economic problems, geopolitical equations and political maneuvering are at cross-purposes and trip each other up. The cost of differentiating priorities or neglecting any of these contradictions can be very serious. Short-term perspectives can therefore lead to a narrow focus on false practices and increase fragility.

Under circumstances where the credit mechanism is still not working, it does not seem meaningful to talk about balancing by looking at financial trends shaped by artificial constraints and a temporary recovery in confidence indices. Given the geopolitical responsibilities that Turkey has taken on, to what extent fiscal policy can be tightened remains unanswered. Under conditions where new exchange rate shocks are likely to occur, the negative impacts of a move away from policies targeting inflation may cause trends to spiral out of control. These kinds of uncertainties can trigger risk aversion by nurturing the perception that the targets have diverged from the reality.

Elections and geopolitical ssues have become a priority

The medium-term program announced in September was based on the claim that the problems in the economy would be a priority and a shift to normal market practices would be in the cards. But when we look at the current policy decisions, it’s obvious this has not happened in practice. Local election campaigns and geopolitical issues seem to have become more important. The changes in global and financial conditions certainly do not support these policies. Blame for failures is then put on markets when the failure is in fact on the decision makers.

Each new year has been worse than the previous one since 2013. We will not succeed by being persistent and patient with the prioritized issues when lessons are not learned from experiences.