Turkish economic growth slows down after overheating

Turkish economic growth slows down after overheating

After the June elections and the US president Donald Trump’s sanctions, Turkish lira became the object of interest for many investors and analysts. Recent data given on Monday by the Turkish Statistical Institute demonstrated 5.2% growth year-on-year in the second quarter. Many experts refer to it as an economic rebalancing and adaptation of the Turkish economics to the current crisis.

However, analysts say, that the growth was the result of overheating due to the government spending in preparation for June elections. Moreover, the sanctions from Trump will result in economic decrease in the second half of 2018 and the beginning of 2019.

The last year’s stimulus-fuelled 7.4% GDP growth led to the widespread inflation and the current account deficit. The Trump’s August sanctions caused lira’s instability, which affected business sector and banks. These events are the main reasons lira has lost 40% of its value since January 2018.

The analytical information from the previous week shows how deeply the Turkish economic crisis has affected the country's main sectors. For example, the activity level in manufacturing has been decreasing for 5 months in a row, and the level of car sales fell at a half of its last year results.

The investors are awaiting the meeting of the Turkish central bank on Thursday, which will decide whether it needs to raise its interest rates or not. The last decision in July connected with resisting radical interest rate hike led lira to collapse. Experts think that this decision was influenced by the current Turkish president Recep Tayyip Erdogan, whose is very negative about high interest rates. They also say, however, that the upcoming decision on Thursday will not be necessary and be made just to raise investors’ confidence.

Last week’s analytics shows that USD/TRY fell from 6.64 to 6.4. ABN Amro analysts say that the Turkish currency’s weakness will keep going warning about the future recession in 2019. They forecast USD/TRY level at 8.00 in December.

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