Markets are shaped by expectations…

Human psychology can create reactions that are both difficult and easy to understand. That’s it can sometimes be hard for positive science to exist in environments dominated by the human character. In such environments, you can’t find the chance to conduct proper experiments, whereas, as economist, we should the trial and error method to crosscheck every data we obtain.

Behaviors can change as expectations go sour. Both demand and prices would stat fluctuating in the most irregular way. That is what we are experiencing at the moment. USD/TRY and the currency basket are about to record high levels. Turkey’s CDS premiums don’t fall below 500 either. Benchmark bond yield has started to go up, thankfully not as sharply as exchange rates.

It’s not just in Turkey; things don’t go so well around the world either. But, most people got one thing wrong: almost everyone expects to hear good news from the IMF or the Fed, whereas they should wait for good news from the World Health Organisation. IN my previous reports, I told you that we should physically heal first before business can gain a positive momentum. Therefore, what we need to do first is a loss assessment.

While all international events are being cancelled one by one, each sector does incur more and more losses every day. For instance, I have recently read a report by Moody’s saying that the United States has definitely lost 3% of its seasonally adjusted GDP as of March 25th.

The number of people visiting the United States has fallen in one-sixth compared to the same month of the last year. American restaurant and entertainment business in its world-famous cities suffered huge losses when again compared to the same month of last year. Last week, the jobless claims filed by people seeking unemployment benefits rose drastically (to more than 3 million from 200,000 the previous week) since the Great Depression of 1929. Obviously, emergency financial aid promised by Trump is one of the main reasons behind this rush.

“Expectations go sour on a global scale…”

The situation seems to be going from bad to worse, not just in the United States, but in Europe and the rest of the world as well. People claiming that China will save itself should think deeper about the current circumstances surrounding the world.

Under the recent developments, economic growth expectations for 2020 are likely to be as follows:

World: % -2.1

U.S.: % -2.3

China: % -0.1

Brazil: %-3.5

UK: %-1.5

Euro Zone: %-6.5

Apparently, expectations turned out to be as indicated above, as a result of the revisions implemented in March 2020. In this case, it’s not possible for Turkey to maintain positive expectations for its GDP growth. Besides, given the fact that Turkey’s GDP performance in the first quarter of 2019 was quite poor, we should not get fooled by the high performance in the first quarter of 2020. Do not let the basis effect fool you.

Unfortunately, coronavirus pandemic may last longer than expected. Up to now, Turkey had only experienced the early stages of the contagion. And I absolutely not agree with the “the novel coronavirus would likely hit a peak this week” statement either. The peak of a process is the point at which it is at its strongest before the number of cases start falling. Even though the growth of cases continues to decline, we will come closer to the peak level every week. And only then, we will see a decrease in the number of cases.

Therefore, I suggest that we should take a realistic approach to this virus crisis and start implementing a more comprehensive plan for companies and other organisations which are likely to be closed for the remainder of the year.

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