Economic shrinkage certain, dosage uncertain

Economic shrinkage certain, dosage uncertain

Like in the entire world, it is certain that an economic shrinkage will be experienced in Turkey too. The decision to keep the shrinkage that is set to start at a low dosage has been met at the latest G-20 meetings but it looks suspicious how much the trend’s pace is going to be kept under control.

It is for sure that the FED will be cutting down on the asset purchases, the money it gives to the market, but expectations vary about when it is going to start and on which track it will proceed. With the last FED statement, an expectation was aroused that monetary tightening will progress slowly but it is certain that the improvements in the U.S. economy will speed the new trend. Afterwards, FED will start hiking the interest rates. None the less, especially developing countries are going to be negatively affected more by the new trend.

Like all the other developing countries Turkey will be adversely affected in the following 2-3 years by the new trend. When we say negative exposure we mean the decrease in short term capital flow, and thus, a negative effect on the growth rates because of these developments.

We have entered an era where national interest rates are on the rise and growth rates are on the decline in the entire world. Turkey and developing countries have benefited from the high liquidity and low interest period and the short term capital flows that were conducted after the 2008 crisis, and have reached relatively high growth rates.

The high liquidity party has come to an end and the positive developments have started to be reversed. To put it in other words, a new era on economic policies is beginning. Turkey has to accord with the new trend just like the rest of the world. The leading changes that will come with the new trend are the rate increases and sinkages in growth rates, namely economic shrinkage and rise in unemployment.

Turkey’s job is even harder

We can say that Turkey is in a harder situation than the other developing countries. The main reason underlying this difficulty is that Turkey is still posting a high amount of current account deficit. Though the circumstances were available in the past 10 years, serious steps to change the economic production structure were not taken, thus when high growth rates were experienced it was financed but the current account deficit also remained high. We can even say that this need has increased; meaning the foreign-source dependency of the economy has risen.

Alongside the current account deficit, the long election period starting in March 2014 raises the risks for the economy. The social incidents that started before the elections and the political attitude that has fueled this conflict also increases the risks. I believe the close combat at Turkey’s borders, especially Syria, and the foreign policy implemented that promotes the probability of Turkey being drawn into the combat are factors that not only badly affect the expectations in the political sphere but also in the economics. For Turkey to maintain its economy’s stability in such an environment we can say that Turkey will most probably experience an even harder and more delicate period compared to other countries. Things will be even harder if populist policies shine out in such a period…