Page 17 - TURKRptSept19

Turkey boasts the largest economy in the Middle East. During the boom years fuelled by cheap credit, it earned a reputation for typically registering growth of more than 5%.
Weighing on the second quarter of this year are a sharper than anticipated fall in industrial production in June, a continuing trend of declining retail sales and restrained public consumption. On the other hand net exports, helped by weakness in the Turkish lira, “will continue to be the biggest positive contributor to GDP,” Goksen added. The second half would bring a 1.5% y/y GDP rise despite risks stemming from weak credit growth, she predicted.
“At this point, we hold our 2019 forecast as a 0.3% annual contraction. We think there are downward risks,” she said.
Turkey’s economy last contracted on an annual basis in 2009, when it shrank by 4.7%.
The government has sharply lowered its forecast for Turkish GDP in 2019 but still envisages growth at 2.3%. It predicts that 2020 will bring 3.5%.
2.3 INSIGHT: ‘EM hunt switches from yield to safety' as Ankara readies for new political, economic phase
Emerging market investors were declaring a change in sentiment ahead of Fed chairman Jerome Powell’s press briefing to be held on August 23 (at 17:00 Istanbul time) during the Kansas Fed’s traditional economic policy symposium at Jackson Hole, Global Capital reported on August 21 with a story entitled “EM hunt for yield replaced by 'hunt for safety'”.
"We were in a proper hunt for yield... But now, that's moved to a hunt for safety. People are loading up on safe assets," an emerging markets portfolio manager based in London told the publication.
What’s clear to the eye is that the global market sentiment cycles are getting shorter. Markets were pricing Fed rate cuts as high as 100bp in the following one-year period due to ongoing pressure exerted by US President Donald Trump. If Powell at Jackson Hole has strongly stood up for his latest argument of a “mid-cycle adjustment”, the global markets were getting ready for a tumble. On the other hand, any sign of obeying Trump would make for fresh temporary rallies.
Right on cue, Turkey has started drifting in line with the latest artificial agenda of its president, Recep Tayyip Erdogan. Erdogan lost some of his aura as a strongman with the reversals he suffered in the late March local elections and Istanbul revote in June—not to mention his botching of the Turkish economy which has also sent the message to ordinary Turks that he’s not the extraordinary leader he’s made himself out to be—but early in the month he replaced the pro-Kurdish mayors of three cities in Turkey’s south east—namely Diyarbakir, Van and Mardin—with state officials.
The brittle state of the Turkish economy and fears that the Turkish lira could again come under the cosh—August 22 saw the currency weaken around 1% against the dollar to as far as 5.79, the worst rate seen since early July, as the market continued to digest central bank moves on required reserves aimed at triggering rapid loan growth in the pursuit, say some critics, of short-term political goals—will remain foremost on the minds of most of the electorate, but dicey geopolitics are again becoming rather unsettling.
The row with Washington over Turkey’s decision to deploy Russian S-400 advanced missile defence systems that are a security threat to Nato military hardware is not resolved—though Trump’s present sympathies for the authoritarian Erdogan have stood in the way of sanctions Congress would
17 TURKEY Country Report September 2019 www.intellinews.com