In this episode of Real Turkey, host Atilla Yesilada provides a medium-term outlook for the economy. Preliminary August data reveal a modest improvement in activity, but carry-through to winter is extremely difficult. Fiscal policy has been used to the limit, necessitating spending cuts or new tax hikes in the summer. Monetary policy is at cross-roads, lowering policy rates prematurely and excessively could upset the exchange rate and accelerate dollarization. Final household consumption, which makes up roughly 60% of GDP is expected to remain week, on account of rising unemployment and the negative impact of utility price hikes on the consumer’s budget. Exports are decelerating as main target EU flirts with recession. After the tourism season ends in October, current account deficits could become a market issue once again. Finally, there is very little confidence in Erdogan’s ability to manage the slowdown and the specter of a split in AKP.
Atilla Yesilada foresees little upside to economic growth, lest Fed cuts rates rapidly and the global backdrop for EM improves.
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