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Reconciliation with Russia did not save the economy of Turkey

Reconciliation with Russia did not save the economy of Turkey

15.12.2017
Tags: Turkey, Analytics, Economics, Statistics

In the Turkish economy there was an amazing situation. On the one hand, it shows double-digit growth rates, not least due to the restoration of trade with Russia and the return of Russian tourists. But a number of other important indicators show that Turkey has not come out of the crisis, but, on the contrary, is plunged into it. What is really happening and what is the cause of such a paradox?

In the third quarter, the Turkish economy showed an increase of 11,1%. This significantly exceeds the world average (according to the IMF summer estimate, in 2017 the global economy will grow by 3,5%) and gives the country the first place in G20 in this indicator.

True, the growth of the Turkish economy is restorative, given the depth of decline in which it was in 2014-2015. Over these two years, GDP declined by almost 15%, but by the end of last year there was a rebound - the economy added 2,9%, which is even higher than analysts predicted. At the beginning of 2017, growth accelerated, following the results of the first quarter amounted to 5%, and the average annual increase in GDP, according to Bloomberg economists, will reach the index of 8,5%.

The main sources of growth were exports stimulated by a significant weakening of the lira (it added by 17,2%), and domestic consumption, whose share in the national economy is estimated at two-thirds (11,7%). This year, another important factor was added - the return of Russian tourists, who provided a serious currency injection.

As the country's president, Recep Tayyip Erdogan, speaking in Ankara, revenues from tourists from Russia in 2017 reached 4,5 billion dollars. Based on the current statistics, according to which the Russian tourist flow is approaching 5 million people, on average, every Russian citizen left in Turkey for 1 thousand dollars. At the same time Ankara expects that in 2018, there will be more tourists for 15-20% more.

However, all this impressive dynamics raises a lot of questions, if you look at other key indicators. According to the results of November in Turkey, the maximum inflation rate since March 2003 was registered - almost 13% in annual terms. A month earlier, it was 11,9%, which is also much higher than the forecast of 9,8% that the Turkish CB gave for this year. His expectations for inflation in 7% on the basis of 2018-go against this background generally look unrealistic.

The main factors for the acceleration of inflation were the rise in oil prices (Turkey is highly dependent on energy imports, fuel in the country is very expensive) and the next devaluation of the lira. The previous sharp drop in the national currency occurred in the middle of last year - soon after the failed coup attempt. For several months, the exchange rate fell from 3 to 3,5 lira per dollar, at the beginning of this year the financial authorities managed to stabilize the situation somewhat, but in September the lyre began to fall again simultaneously with the growth of oil prices. Now for the dollar give 3,9 lira, which updated the historical minimum, if you count from the denomination 2005 year.

This behavior of the national currency usually contributes to the growth of tourist traffic. Shortly before the fall of the ruble at the end of 2014 year for one lira in Istanbul exchangers asked for about 20 rubles, now the rate is about 16 rubles, as if the ruble itself all this time did not fall anywhere, but, on the contrary, grew.

But the falling lira does not bode well for citizens of the country - now they feel on themselves daily what the economic term "inflation-devaluation spiral" is in reality. Expensive even those locally produced goods, which in Turkey have always been in excess: for example, experts at Goldman Sachs bank note a jump in vegetable prices by almost 13%. There are also the first indisputable signs of the desire of the Turks to shift into more liquid assets than the lira. In November, the World Gold Council noted a significant increase in Turkish investment in gold bars - 47 metric tons for the current year against 14,8 a tonne a year earlier.

"Usually, in an economy where there is an active growth, the national currency does not fall, because economic growth causes an increase in employment, consumption and sustainable, really secured demand. In Turkey, these signs are not observed. The country is in a state of not a rapid economic development, but a very difficult transition period, "Vassily Koltashov, head of the Center for Economic Studies of the Institute of Globalization and Social Movements, told the newspaper. - The concentration of power in Erdogan's hands provoked powerful protests in the cities of Turkey, but did not give solutions to the economy that would satisfy the society. There are big problems with employment, people still feel a drop in their incomes and do not understand when their growth will begin. Therefore, the Turkish economy still remains in crisis. Some activation still takes place, but it is not of a critical character, as the authorities try to show. "

Koltashov admits that thanks to the devaluation of the lira, Turkey gained a significant advantage in the tourism sector over its main neighbor, the rival, Greece, which is in the euro area. But in reality the country is only beginning to return to the niche of cheap tourism, where it was in 1980-1990-ies, while rest there did not begin to significantly increase in price. "In addition, the reduction in costs is due to a reduction in the price of local labor," the economist emphasizes. "All this, of course, increases the competitiveness of the economy and gives some effect, but it gives rise to depression in society: Turkey does not move forward, but tries to stay afloat."

A notable position in this situation was taken by the Turkish CB, which kept a rare holding, keeping the discount rate at the level of 12,25% for the past several months. A classic monetarist recipe for accelerating inflation and the fall of the national currency is the rate hike. For example, on this unpopular path in the end of 2014 the Bank of Russia went. Now the National Bank of Ukraine is resorting to similar measures to cope with the next surge in inflation and a new cycle of devaluation of the hryvnia.

But the Turkish Central Bank in its policy of betting management has to look back at President Erdogan, who is a principled supporter of saturation of the economy with relatively inexpensive loans. "The main and direct cause of inflation is the change in interest rates. We demanded lower interest rates, and as a result, inflation dropped to single digits. Once interest began to rise, inflation again became double-digit. They say that the Central Bank is an independent structure and should not be interfered. So - non-interference and led to this development of events, "- he said in mid-November, again demanding that the Central Bank cut rates.

Western experts, on the contrary, recommend that the Turkish Central Bank play a raise against the "unorthodox" position of Erdogan. Soon after the coup attempt, under the threat of a collapse, the rate was already raised from 10 to 12,25%, which for the time was kept by the devaluation. But at the same time the government decided to expand state guarantees for business, and the economy received about 50 billion lire of new loans. At the same time, Turkish companies have accumulated a considerable amount of currency loans, estimated at 300 billion dollars, so another round of devaluation created a new series of problems not only for the population, but also for business.

In the end, the Bank of Turkey at a meeting on Thursday decided to raise the discount rate for symbolic half a percent, citing an increase in the level of inflation. However, the position of the Turkish authorities on pumping the economy with credits from this, of course, will not go anywhere. "Money should be cheap, they should be abundant and easily accessible," Minister of Economy Nihat Zeibecchi said in an interview with Bloomberg.

In parallel, Erdogan, in spite of the new stage of the decline of the lyre, continues to promote his long-standing idea of ​​switching to trading in national currencies with Turkey's main allies. At the end of last year, he addressed such a proposal to the leadership of Russia, and this October - to the ninth summit of the Organization of the Islamic Eight (apart from Turkey, it includes Bangladesh, Egypt, Indonesia, Iran, Malaysia, Nigeria and Pakistan). "Our goal should be to increase the level of trade turnover from 100 billion to 500 billion dollars. To do this, we must switch to settlements in national currencies. There is no need to expose our economies to pressure from the dollar and the euro, "he said then.

"Trading in national currencies is not very rational now: they will still have to be dumped and go to reserve currencies to lock in profits and not to be eaten by inflation," Vasiliy Koltashov objected to Erdogan. - The Turkish lira needs international support, so that someone sells dollars, buys Turkish goods for lira and even holds some part of the money in lire. In this, the Turkish president sees a means of stabilizing the national currency, because he understands that the internal resources of stabilization have been exhausted. But these are only desires - the reality is completely different, so the lyre will, apparently, fall further, which can lead to aggravation of social tension. "

The second wave of the global crisis 2014-2016 years showed that Turkey - is a small and therefore unstable economy, which needs to look for an external support. "That's why Erdogan was forced to make peace with Russia and actively seek warm relations with China, despite all his Pan-Toman pathos," the expert concluded.

Michael tumbling
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