Strategic observation

Spotlight: Turkey faces economic slowdown amid currency tumble, high inflation: analysts

2018-09-11 02:32:07 (Beijing Time)


ANKARA, Sept. 10 (Xinhua) -- Turkish economy grew 5.2 percent year-on-year in the second quarter of 2018, signalling a slowdown amid lira devaluation, high inflation and unresolved diplomatic spat with the United States.

The official data, released on Monday by the Turkish Statistical Institute, showed that the growth of the second quarter is below that of the first quarter's 7.4 percent, and registered one of the weakest growths since 2016.

Nonetheless, the growth rate of the second quarter still puts Turkey at the top of the members of the Organization for Economic Cooperation and Development (OECD) and second among European countries.

However, there is an apparent slowdown of the Turkish economy in general, said observers, as the output of the agricultural sector decreased by 1.5 percent compared with the same quarter of the previous year.

Household consumption expenditures increased by 6.3 percent, down from 9.3 percent in the first quarter, amid a wave of price hikes that has affected the entire population's purchase power.

Turkey's economy has recorded seven consecutive quarterly growth since a slow-down quarter after the failed coup attempt in July 2016.

Turkish President Recep Tayyip Erdogan has overseen strong growth during his 15 years in power but the economy, one of his strongest points, is now facing challenges after a sharp depreciation in lira, triggered partly by domestic problems and a spat with its NATO ally the United States over Turkey's detention of a U.S. pastor suspected of espionage.

Erdogan accuses the administration of U.S. President Donald Trump, which has imposed trade sanctions on Ankara, of waging an economic war by using the currency as a tool of attack against his country.

The Turkish leader has urged his people to uplift the value of the national currency by exchanging their golds, dollars and euros into lira.

"There is indeed a slowdown of the economy and it should be a more potent one in the next two quarters. This is a prelude to a deeper slowdown that will take hold in the second half," said Enver Erkan, a financial analyst of the Istanbul-based GMC Forex.

The expert underlined the need for the Turkish government to follow the path of structural reforms in order to reach a sustainable economic growth, which was being hit by the soaring inflation of nearly 18 percent in July.

After the announcement of the GDP data on Monday, the lira dropped 1.1 percent in the afternoon, traded at 6.45 against the U.S. dollar as of 3 p.m. (1300 GMT).

However, Treasury and Finance Minister Berat Albayrak said earlier in a statement that "economic balancing" has started in line with the government's targets as exports and tourism sectors are benefitting from the lira decline.

Market makers are now shifting their attention to the Turkish Central Bank's monetary policy meeting scheduled on Thursday, where an interest rate hike is likely to be announced.

The Central Bank hinted recently that a rate hike could be on the table to stabilize the lira which has decreased about 40 percent since the start of this year against the U.S. dollar.

"There are expectations among market makers on a hike of 200 base points or plus on Thursday, but it can also be less or more, all options are on the table," said Erkan.

Major credit rating agencies have recently downgraded the Turkey's sovereign credit rating and the corporate rating of some Turkish banks, fuelling fears for the country's strong banking sector.

According to the banking data, Turkey is due to repay almost 3.8 billion U.S. dollars on foreign currency bonds in October.