Articles

Positive Indicators on The Turkish Economy



On the background of structural problems in the Turkish economy along with the US sanctions on Ankara, Turkey suffered over the past few weeks from a financial crisis with varying degrees and impact.

 

However, there are unhidden facts that from the reader and the experts, the current deficit transactional accounts on the one hand and Turkey's need for "hot" funds on the other hand, addressing the political factors that were the engine of the recent crisis may contribute to a mitigation.

 

On the level of dealing with the crisis, the Turkish government based on external reasons, considering what happened as an "economic war" that requires internal solidarity, stressing that the Turkish economy is much stronger than some of the hasty assessments issued, and that it is able to overcome the crisis in the short and average terms.

 

The Turkish government has sought foreign loans and investments, some of which have been provided by China, and hopes on the improved relations with some European countries will soon produce new opportunities. It also hopes to warm relations with Washington, as Erdogan mentioned more than once specially in his meeting with Trump during the UN General Assembly.

 

As for the economic problems, the Ministry of Finance and Treasury announced its medium-term plan including its objectives and forecasts for the Turkish economy, which gave the impression of a period of stagnation in the Turkish economy until 2020 before returning to recovery in 2021.

 

Over the last few weeks, some positive indicators have been recorded regarding the Turkish economy and directly related to the financial crisis.

 

The first was the stability of the exchange rate of the Turkish lira against foreign currencies after a period of decline and volatility, and even improved relative to below 6 Turkish liras against the US dollar as of this writing. An improvement that many have attributed to the positive statements on the relationship exchanged recently between Ankara and Washington, and the session of the trial of Rev. Brunson.

 

The second indicator, most importantly, is the current transactional account deficit between imports and exports, which was presented as one of the main causes of the current financial crisis. Statistics for the last three months have seen an increase in exports and a decline in imports compared to last year, narrowing the gap between them and reducing the deficit.

 

Last July, Turkish exports increased by 11.6% compared to last year to reach 14.7 billion dollars, with 6.7% reduction on imports to reach 20.5 billion dollars. The deficit decreased by 32.6% by 6 billion dollars.

 

While exports fell by 6.5% to reach $ 12.4 billion in August imports fell by 22.4% to $ 14.8 billion compared to last year. Foreign trade deficit fell by 59% to $ 2.4 billion.

Finally, in September, exports recorded a 22.6% increase over the previous year, a record increase, according to Commerce Minister Ruhsar Pekcan, to reach $ 14.5 billion, as imports declined by 18.1% to $ 16.4 billion. Foreign trade deficit fell by 76.85% to $ 1.9 billion.

 

These figures clearly indicate that the current deficit has declined markedly in the last three months, thus providing more liquidity for the government compared to last year, but with a noticeable drop in imports. Which means that these statistics bear three scenarios.

 

The first being that a government vision to reduce expenditure and the deficit and provide liquidity, the second to be a temporary circumstance due to current economic conditions or other reasons, and the third is to be the result of lack of liquidity and the inability to Import.

 

It is important to say that the reduction of the current deficit is not an independent goal and its achievement alone is not enough to solve the crisis (as well as to adopt a single criterion for assessing the state of the Turkish economy). It is important to note that the volume of foreign trade according to the previous figures has fallen by 15.9% in August and 2.99% in September after rising only 0.33% in October.

 

This is in line with the declining expectations of the recent growth in the economy by the Ministry of Finance and Treasury, which has hinted at what might be called government austerity policy in the current period.

 

In conclusion, based on the above political factors, financial and economic changes, the next two months, October and November, will carry a significant part of the answer to the future course of these variables. They will include new figures on exports and imports, the fate of Rev. Brunson and the Turkish position on the US sanctions on Tehran, which will give a clearer picture of the future direction of Turkey's economy and financial crisis.

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