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46 I Outlooks 2019 bne February 2019
member state Cyprus at a time when Turkey’s bid to make progress in acced- ing into the bloc is going nowhere.
Ankara may have ended the country’s two-year-long state of emergency – brought in after the attempted coup in 2016 – in July after the snap elec- tions, but Brussels remains deeply unimpressed by Turkey’s disregard
for basic human rights. It was a case of barbs not bouquets in late Novem- ber when EU foreign affairs chief Federica Mogherini and enlargement commissioner Johannes Hahn came to Ankara for a high-level political dialogue meeting. “A strong Turkey means a democratic Turkey,” Mogher- hini told a press conference, declaring substantial concerns over the deten- tion of some prominent academics and civil society representatives.
Indeed, the massive purges launched under the emergency regime after the failed putsch do not appear to
be at an end and in mid-December it was reported that nearly 2,000 of the tens of thousands arrested have been sentenced to life imprisonment.
As 2018 neared its end, the annual survey of the Committee to Protect Journalists (CPJ) confirmed that Turkey remains the world's biggest jailer of journalists. The country has claimed the ugly distinction for a third straight year.
Economics
“Turkey seems to be undergoing a much harder landing than I think many people expected,” Timothy Ash, senior sover- eign strategist for emerging markets
at Bluebay Asset Management said in a note to investors on December 18.
“Looking at the data flow of higher frequency indicators, these are suggest- ing a much steeper slowdown – much worse than the 1.5% the 2019 GDP growth prediction in the central bank expectations survey would suggest, perhaps even a negative full year print... In previous periods of crisis – back in 2008/09, and then 2013/14, 15/16, the economy bounced back very quickly
– a reflection I think of the underly-
ing vibrancy of Turkey, with a young
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growth population, pro business culture, strong banks and sovereign balance sheet. As many people have argued
– this time is likely to be different.”
Some analysts think Turkey has already slipped into a technical recession and in October the IMF cut its growth outlook for Turkey to 3.5% in 2018 and 0.4% in 2019 in the latest edition of its World Economic Outlook. Its previous fore- cast, issued in April, predicted expan- sions of 4.2% and 4%, respectively.
Renaissance Capital responded that even with their low growth forecasts
the international financial institutions (IFIs) were probably still being overly optimistic. “We still think consensus and the IMF have to revise down their over-
home with just 1.6% y/y posted for the third quarter. The quarter brought the worst of the currency crisis with the lira falling by as much as 47% to TRY7.24 against the dollar, year-to-date. By
the end of the year it had recovered to around 30% down and had exhibited relative stability throughout December.
“The effects of August’s currency crisis caused Turkey’s economy to contract
in Q3 and more timely evidence sug- gests that the downturn deepened and that the Turkish economy has probably entered a technical recession in Q4. Over 2018 as a whole, GDP growth is likely
to come in at around 3.0% – although that will almost entirely reflect the strong start to the year. Our expectation for the economy to contract by 0.5% in
“Some analysts think Turkey has already slipped into a technical recession”
optimistic view on Turkey’s economy in 2018. Bloomberg consensus STILL has GDP rising 3.5% in 2018 and then slowing to 0.6% in 2019... The IMF
in October forecast Turkey slowing to 3.5% in 2018 and 0.4% in 2019. Our numbers now have Turkey’s GDP slow- ing to 1.3% in 2018 and 0.8% in 2019.
“This is important because markets try and price in growth a year ahead, and accelerating vs decelerating growth matters. If the IMF and Bloomberg consensuses are right [on 2019], you should not touch Turkey with a barge- pole – given the massive slowdown which they think will be as big as the hit that Argentina and Turkey received in 2018 (vs 2017). We think Turkey will slow – but similar to China and Chile – and that implies there may be decent stories to find in the market.”
Jarring slowdown
The jarring slowdown is sobering for
a country that recorded ‘warp-drive’ growth of 7.4% in 2017 (beating China) and an almost identical figure to that
in the first quarter of this year. The second quarter brought 5.3% y/y, after which the trouble truly began to hit
2019 is below the consensus forecast for growth of 0.6%,” Jason Tuvey of Capital Economics said in a research note entitled “Economy contracts, technical recession on the cards”.
ABN Amro is forecasting a Turkey contraction of 1.5% in 2019 before
a return to slow growth of 2.5% in 2020 and a prolonged period of sub- dued growth during the recovery.
By the first quarter of 2020, lower inflation will allow the central
bank to reduce interest rates, thus stimulating the credit flow and therefore boosting investments, ABN Amro
said, anticipating when the recovery would get under way. But growth of 2.5% is still well below the country’s trend growth of around 4%-4.5%. To improve on this rate, Turkey needs to reform its economic model from credit-oriented to one that is driven by boosting productivity gains.
“This time we’ll grow below potential” In early December, Refet Gurkaynak, a professor of economics at Bilkent University in Ankara, warned: “This time [coming out of an economic