Sudden upsurge in the exchange rates are making people wonder, “What is happening?” I honestly don’t know why they seem so surprised.
But, I wasn’t surprised at all. And, let me tell you why: Recently released industrial data indicates that there hasn’t been any significant improvement in Turkish economy while a slight balancing will continue, which will definitely not bring any positive impact on GDP growth rate.
People constantly ask me about the 2nd Quarter GDP growth rate, which is scheduled to be released in September. I only have one answer for them: “Pretend that you’re a doctor. You do what a doctor would do vis-à-vis 2nd Quarter GDP growth rate. Assume the worst and be happy when things turn out all right. Let me explain it to you.
It would be good news if GDP growth rate turned out to be slightly higher or lower than zero in the second quarter. However, a figure around -2% would definitely let people down. Despite everything, I still expect Turkish economy to gather its strength in the third and fourth quarter.
Accordingly, I think there’s a high likelihood that Turkish economy will finish 2019 with a GDP growth rate “around zero, a figure that is not too negative”. Remember that international financial institutions had forecasted a GDP growth rate around -1.5% and -2.0% for Turkey in 2019.
“I’m surprised that you’re surprised!”
Let’s now take a quick look at the public finance: I must say that the recent improvement in July budget is only a temporary thing since prepaid taxes and instalments of debt restructuring have already been paid in July. Apparently, government revenues were mostly sustained by non-tax revenue such as reserve fund.
Despite everything, government still seems pretty skilful when it comes to collect taxes, however, it looks likes year-end budget deficit will exceed the budget target, not to mention primary deficit. In short, Turkey must shrink public sector as immediately as possible. If not, recent improvement in exchange rates and interest rates will never become a permanent trend, eventually leading them to rise again.
The fact that Turkey has removed three elected mayors from office yesterday shows us that a new set of counter-terrorism measures is on its way. Realizing that the United States hasn’t been true to its word about the safe zone in Syria, Ankara seems like it’s getting ready to take some extreme measures.
I think it’s only natural for exchange rates to go up under the circumstances. By the way, I really am surprised at those who are surprised. My guess is that sales pressure still continues and a new wave of sales might just appear unless there’s no movement by this afternoon.