Lira Crisis Pulls Turkey Into A Recession
An official recession is where an economy contracts for at least 6 months and a real decline occurs in GDP, income, employment, manufacturing and sales. More often commentators refer to a recession where GDP growth rate is negative for two or more consecutive quarters. In Turkey’s case growth in Q4 2018 contracted by 2.4% and in Q3 2018 by 1.6% creating an economic landscape not seen since 2008 and the first recession for a decade for President Recep Tayyip Erdogan.
US relations, a spat with President Trump plus a strengthening dollar set the stage for this recession back in 2018. These events triggered sales of Turkish Lira in currency markets which affected the whole economy.
President Ergdogan is due a fresh round of elections and may find difficulty maintaining the narrative of blaming foreign investment for the economic hardships. Interest rates are sky high, bank lending is sluggish, and analysts predict a long road to recovery. Contagion is a real risk if Turkish institutions default on foreign debt with potential implications for emerging markets and the global economy.
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