Europe at risk of recession

We have discussed enough the CBRT’s rate cut, stating the risk of global recession. Yes, there is a risk of a recession, but we cannot say that it is the argument for this cut.

The expectation of a recession in European economy has become quite unsettling. 

Economists taking part in recent surveys seem to have increased their expectations for an economic contraction in the next two quarters. This expectation, which was 45% before, has climbed to 60% in the last survey. The reasons for this sudden rise are:

– Suspension of natural gas deliveries from Russia, which is expected to affect Germany the most. The largest economy in the euro area is giving the signs of a slowdown.

– Increase in the cost of living: This situation, which directly affects businesses and individuals, also leads to further lack of demand. Supply shortages in both energy and food do not let prices go down.

– Negative inflation forecasts: Experts say that inflation will not drop below 4% until 2024, in which case the ECB will definitely hike rates by 50 bps once again. The rise in interest rates before the economies can fully recover worsens the risk of recession.

All of this is actually a warning that each country should be careful with interest rates. Most likely, the CBRT attributes its policy to this reason, hoping that “interest rate hikes will eventually have to stop”.  However, low policy rates will not help us recover the loss of exports that will result from a potential European recession. We must have a plan B.

“Can Turkey Take Advantage of this Opportunity?..”

Companies are thinking about relocating their production to Turkey. We know that the Europeans who came here to invest in the previous period did not proceed with their decision due to negative developments in the country. Perhaps they can come again for new investments without taking into consideration the current diplomatic and political situation in Turkey.  The most important obstacle to potential investments is economic policies and ever-changing legislation.

As a matter of fact, the solutions that will help calm down the exchange rates, inflation and interest rates will actually cost us nothing. However, at this stage, apparently the government is struggling to change its unidirectional politics. Also, the steps taken do not leave much room for manoeuvring either. So, naturally, foreign investors do not want to make any decisions before the elections.

All of this unfortunately makes elections nothing but a panacea in the eyes of, well, everyone. Elections are the solution, but given that when of it still remain uncertain, we do not know when we will be able to solve the problems as well.