Page 16 - TURKRptSept19

a research note.
More bold easing expected Given the whopping 425 bp benchmark rate cut introduced by Turkish President Recep Tayyip Erdogan’s reshaped central bank last month, with more bold monetary easing expected from the national lender at its next rate-setters’ meeting on September 12, and taking into account the latest bolstering of public bank lending, the government is aiming to see GDP growth turn positive in Q4.
However, all depends on whether officials can prevent another currency shock.
“Turkish central bank playing with fire,” Jason Tuvey of Capital Economics said on July 26 in a research note.
Also, treading gingerly was S&P Global. The risk of a full-blown banking crisis in Turkey was still high but had eased in recent months with the stabilisation of the lira, the credit rating agency said on August 5.
“We are increasingly concerned about banking vulnerabilities in Turkey. Although the financial sector came through last year’s crisis relatively well, growing government intervention and deposit dollarisation suggest that the fallout from a fresh period of financial stress could be more severe,” Capital Economics said on July 24 in its latest EM Financial Risk Monitor report for Q3, entitled “Risks concentrated in the usual suspects”.
Capital has long seen Turkey’s banking industry as the most vulnerable across the EM universe. It and other observers worry that while Turkey’s currency vulnerability has approached the green zone, its sovereign vulnerability is getting closer to the red zone.
Erdogan will emerge from the summer months still badly damaged by his party’s loss of the Istanbul revote in June and its poor performance in the cities during the end of March local elections. With both dismay at Turkey’s economic morass and the smell of blood from Erdogan’s new vulnerability in the air, the autumn political season will no doubt be intriguing. The chance of there being a snap poll announcement cannot be overlooked.
A poll of 18 economists has determined that Turkey’s economy is set to shrink for a third consecutive quarter in the second quarter, with the median expectation being for a contraction of 2% y/y.
The official GDP data for Q2 are to be announced on September 2.
For 2019 as a whole, the economists surveyed by Reuters anticipated zero growth for the recession-hit economy still grappling with the bitter effects triggered by last year’s balance of payments crisis.
Forecasts for the second quarter ranged from contractions of 1% to 2.2%. Estimates for annual GDP ranged from 1% growth to a 2% contraction. The responses were largely more optimistic than what was seen in the results of a July Reuters poll, the mean forecast of which was for the economy to this year contract by 1.5%.
Turkey suffered a 3% y/y drop in GDP in the fourth quarter of 2018 and a 2.6% y/y decline in the first quarter of this year. The first quarter did see the economy return to growth on a quarter-on-quarter basis, however. The poll indicated that it might again achieve quarter-on-quarter growth in Q2.
“We expect the weak trend in investments to continue again and therefore have a bigger negative impact on GDP than in the previous quarter,” Ozlem Bayraktar Goksen, chief economist at Tacirler Yatirim, was cited as saying in a summing up of the results of the latest poll.
16 TURKEY Country Report September 2019 www.intellinews.com