Inflated economic expectations and reality

Inflated economic expectations and reality

It has been observed that the ministers who oversee the Turkish economy have made an effort to raise expectations more than ever in order to feed into the positive market outlook.

It is important to bear in mind that what makes one especially cautious of the deliberately excessive optimism, which has been on the rise lately, is the possibility of a large loss for investors.

Those in the economic administration often resort to the method of creating expectations. If the expectations are based on facts, then that method might positively affect the course of the economy. However, as we have witnessed before, if expectations are influenced by a lack of concrete support, instead of expectations becoming reality, there is greater disappointment.

Ministers keep declaring new incentives and talk about how well the economy is doing and how well it will be. Even Turkish Deputy Prime Minister Mehmet Şimşek has stopped touching upon risks, as he had done before in his previous talks.

Şimşek has started making ambitious statements about bringing down the inflation rate to the single-digit level, decreasing the account deficit and lowering the unemployment rate. Finally, we have even witnessed him saying “the money has been left there deliberately in order to ease the market,” in explaining the insufficient demand for Treasury debt while actually defending an inflationist method.

The other ministers are also competing to make statements; they appear on TV channels or in newspapers almost every other day just to draw rosy pictures on specific or general issues. The advisors also join them with exaggerated words.

Due to these statements in recent days, ties have been warming with Germany and the EU, and there has been an improvement in relations with the United States. However, they speak about everything as though all of the problems have been solved.

The reason behind the rush in inflating expectations lately is unclear. We do not know whether the rumors are true that snap elections are being planned on July 15, the anniversary of the defeated coup, but it is clear there is an unusual effort.

If reality is different

Actually, the economic and political situation is no different than it was three months ago. Turmoil continues in the region and relations between Turkey and the U.S. are not any different. One point that is overlooked in relations with the EU is that we no longer discuss EU membership. Relations with the EU are progressing according to the economic interests of EU countries, albeit our request for renewing the Customs Union Agreement has been denied.

In the domestic political scene, nationalist alliances of the past have reemerged. Thus, it could be considered a period of diminishing hope for democracy, human rights, freedom of the press, lifting the state of emergency and establishing civil peace.

As for the economy, the macroeconomic equilibriums threatening stability have become more apparent nowadays. As a high growth rate has emerged, the current rate of national income to the current account deficit has risen to a dangerous zone of 5.5. The unemployment rate has decreased on paper through controversial employment methods supported by the government, such as the recruitment of more interns and apprentices.

Although new incentives are declared almost every day, aside from a few investment schemes that provide exorbitant profits, there is no longer foreign capital coming to Turkey.

It is hard to believe the inflation rate will drop to the single-digit level under these circumstances.

That is why the International Institute of Finance (IIF) described Argentina and Turkey as “weak links” and said the Argentine Peso and the Turkish Lira are fragile against the rising current account deficit levels despite high devaluations, meaning the two currencies might still be valuable.

In summary, while the economic reality is evident, this reality might only be portrayed differently for a short time. When reality finally surfaces, the cost of an unforeseeable period will be added to the bill.

Erdal Sağlam, hdn, Opinion