Turkey’s recovery rests on shaky foundations

Policy loosening will drive a stronger recovery in Turkey’s economy than most expect this year, but this is likely to come at the cost of higher inflation, a widening current account deficit and falls in the lira. That’s likely to force the central bank to hike interest rates within the next twelve months, setting the scene for a fresh slowdown in 2021.
Jason Tuvey Senior Emerging Markets Economist
Continue reading

More from Emerging Europe

Emerging Europe Economics Weekly

Surging virus cases and the re-imposition of lockdowns

A renewed wave of COVID-19 cases has prompted some governments to reimpose strict containment measures across Emerging Europe and talk of lockdowns is now becoming more widespread. The experience so far during the pandemic is that tighter containment measures need not result in a large hit to activity. But the latest virus waves add to the growing near-term headwinds in the region from rising inflation and supply disruptions to industry and we think that recoveries will slow sharply in Q4.

22 October 2021

Emerging Europe Economics Update

CBR accelerates its tightening cycle again

Russia’s central bank (CBR) stepped up the pace of its tightening cycle again at today’s meeting with a larger-than-expected 75bp interest rate hike, to 7.50%, and the hawkish tone of the accompanying communications suggest that further tightening will be needed. We think the policy rate will be hiked to 8.25% by year-end and remain higher than most expect throughout 2022.

22 October 2021

Emerging Europe Economics Update

CBRT now playing with fire after aggressive rate cut

Any remaining confidence in the credibility of Turkey’s central bank (CBRT) was shattered after today’s larger-than-expected 200bp interest rate cut, to 16.00%. The lira hit a fresh record low against the dollar and we think that it will continue to weaken as President Erdogan piles on the pressure for further easing. The risk of another balance of payments crisis akin to that in 2018 will continue to grow.

21 October 2021

More from Jason Tuvey

Middle East Economics Update

Iran: nuclear deal, elections and the economy

Negotiators appear to be closing in on an agreement to revive Iran’s nuclear deal which, if revitalised, would provide a substantial lift to Iran’s economy – it could plausibly expand by 8-10% per year in 2021-23. Higher Iranian oil output would act as a drag on global oil prices and could prompt governments in the Gulf countries to keep fiscal policy tight, weighing on their recoveries.

7 June 2021

Emerging Europe Economics Weekly

Erdogan piles on the pressure, Israel’s surprise coalition

Talk this week of rate cuts in Turkey has led to further falls in the lira and, ironically, means that the central bank will stand pat at this month's MPC meeting. In Israel, the coalition proposal formed to topple incumbent PM Benjamin Netanyahu is so fractured we don't think it will lead to major changes in economic policy. Finally, the announcement by Russia's government to de-dollarise its National Wealth Fund assets won't have an economic impact, but it is a clear move ahead of the Biden-Putin summit this month that Russia sees its future as isolated from the West.

4 June 2021

Emerging Europe Data Response

Turkey Consumer Prices (May)

The latest falls in the lira mean that, despite the fall in Turkey’s headline inflation rate to 16.6% y/y last month, the central bank (CBRT)will probably leave interest rates unchanged at this month’s MPC meeting. But the CBRT is likely to fulfil the president’s desire for monetary loosening by August.

3 June 2021
↑ Back to top