Proven economy policies in jeopardy

We already knew that President Recep Tayyip Erdoğan and Deputy Prime Minister Ali Babacan were not in total agreement about the policies applied, but we recently learned that there was a huge fundamental difference. Erdoğan is continuing to openly and publicly accuse, with harsh words, Babacan and Central Bank President Erdem Başçı’s policies. Now everybody is curious how this disagreement or more precisely this showdown will end.

Even though there were differences in viewpoints, because it was Babacan’s policies that were in effect, markets did not attribute much importance to these discussions. However, what has been experienced in the past month has created concern about the possibility of a return from Babacan’s policies since he will not be a deputy this term because of the party’s internal maximum three-term rule. In other words, with the new government to be formed after the June elections, since there will not be any Babacan and team, the markets have started showing concern.

More precisely, they fear that after this date Erdoğan will appoint a deputy who has views closer to him in place of Babacan. You might say that it is Prime Minister Ahmet Davutoğlu who is to make the appointment, but everybody can see that Erdoğan is now persistent in appointing somebody who would implement his economy policies. The reason for this is that even though he appointed them himself, he is continuing to accuse Babacan, Başçı and others like them with harshest of words such as “they are serving the interest rate lobby” and “the policies they are implementing are equal to treason.”

In short, the danger right at our door is the return from the economy policies that have proven to be successful so far. Erdoğan, contrary to all scientific theses, wants interest rates to be cut sharply saying, “This is my thesis.” He is defending a strange argument that in this way both, the inflation would fall and investments would increase.

He wants this at a time when a new trend is about to start in the global finance system when, with the FED increasing interest rates, Turkey and other developing countries will obviously be damaged. He cannot see that this would be a disaster for the economy.

Bad signals increasing

While the new trend is starting, economic indicators have already started giving serious danger signals. The growth data of 2014, which will be announced this month, is expected to be a figure between 2.6 and 2.7 percent. In other words, the Turkish economy that stood out with its high growth does not have this story anymore. That being said the climb in the unemployment rate has become visible.

The export data of the month of February that was released the other day shows that the downward trend continues; the fall in two months has reached 7 percent.

Turkish manufacturing industry’s Purchasing Manager Index (PMI), after 49.8 percent in January slightly went back to 49.6 percent in February.

The seasonally and calendar adjusted construction employment index in the fourth quarter of 2014 decreased 3.3 percent compared to the previous quarter. When only calendar adjusted, this fall reaches 13.6 percent. 

The CNBC-e Consumer Confidence Index in February fell 11.3 percent compared to the previous month, while the Consumer Trend Index went back 13.5 percent at the same period.

While these are happening, foreign exchange rates and market interest rates continue to increase.
This should be what is called “adding fuel to the flames…”