2019 will be hard…

People have showed great interest in panel we held at AU’s Gayrettepe Campus on Wednesday evening. It was a lovely task for me to moderate this panel with Mahfi Eğilmez and Işın Çelebi participating as guest speakers. Here are my impressions of the evening:

Professor Mahfi Eğilmez indicated that Turkish people tend to turn to dollar rather than lira when exchange rates start going up which consequently causes a decline in consumer confidence index, while pointing out that the fact that there is high deviation in inflation target leads to higher distrust in the government. Stating that “The fact that the Central Bank has been missing its inflation target constantly leaves negative impressions on the people”, Dr. Eğilmez also expressed that there is a major difference between the New Economic Programme targets and IMH targets.

Both Işın Çelebi and Mahfi Eğilmez have pointed out that Turkey will face consecutive negative growths in 2019. Unfortunately, I happen to agree with them. Besides, expectations for the 3rd quarter this year are expressed in zero figures.

Let me also indicate that according to the IMF, USD to TRY parity may hit record levels in 2019. This possibility can only become reality if current account deficit grows larger while economy is shrinking. Maybe IMF can foresee things the others cannot. For instance, we are likely to come into conflict with Greece in the Eastern Mediterranean until March 2019. I really don’t know whether IMF has taken into account this possible conflict between the two countries when making predictions. But the numbers foreseen by the IMF are not a good omen for Turkey’s economic future.

Those earning foreign currency might just get lucky…”

Dr. Işın Çelebi made some good points shedding light on several anomalies in the Balance of Payments account. When we make a comparison between the periods of January-September 2017 and January-September 2018, we can see that there have been substantial capital outflows in 2018 despite the fact that there is not much difference between current account deficit numbers. That’s why Central Bank reserves have been used to finance current account deficit with the analysis of Net Errors and Omissions item, which sadly gives a negative impression.

2019 will be a difficult year where Turkey will have difficulty finding foreign funds. The fact that the Fed and ECB slowly enhance their tight monetary policies will probably cause distress in countries like Turkey. This being the case, I think I must warn Turkish firms about what is about to happen:

Dr. Eğilmez concluded his words with a clear evaluation: If a firm’s foreign currency revenue is more than 50% of its total revenue then this firm would overcome 2019 relatively easily. However, if its foreign currency revenue is less than 30% of its total revenue, it might then face major difficulties. And the firms having foreign currency debt yet earning TRY will have to make a lot of effort to survive.