Friday, December 3

This is the economic recipe of one of the countries with the highest inflation in the world

One recipe is the one being carried out by the Turkish Central Bank: lower interest rates to prevent the economy from contracting and inflation from deepening in addition to boosting the domestic market. But the application of this strategy is not far from criticism: “Growth driven by the credit boom is problematic. It is overheating the economy, fueling inflation and putting pressure on the currency, and it fails to attract the high-quality resources required to improve well-being. “ said Guldem Atabay, an economist at Global Source Partners, for the Bloomberg news platform.

Erdogan made a consistent decision in recent months: with the deterioration of the economic situation and the depreciation of the Turkish lira after the appearance of the coronavirus, he replaced the head of the Central Bank with a less technocratic profile. He appointed Sahap Kavcioglu in place of Naci Agbal without hiding his interest in intervening in monetary policy. Naci Abgal was displaced after the agency raised rates to 19% to lower inflation, a measure applauded by the market but against the presidential position.

Inflation in Turkey also impacts the majority of the population, mainly due to the rise in imported food and beverage products. TO This is added to the weakening of the lira, whose value has fallen by 20% compared to the value of the dollar since 2020. In fact, the Turkish currency has ranked as the worst performing emerging market currency of this year 2021, below the Romanian lei and the Polish zloty.

Considering all these factors, the Central Bank of Turkey proposes to review its inflation forecasts for the next three years, starting with that of 2021, which would increase from 14% to almost 18.5%.

Another problem in the Turkish economy is unemployment: the annual unemployment rate stood at 13.7% in 2019 with an upward trend since 2016. In 2020 the unemployment rate decreased slightly to 13.2%. The great concern is youth unemployment, which rises to 25.3% and almost doubles the total unemployment figure. With regard to public accounts, budget deficit in 2020 it stood at 3.7% of GDP and public debt at 34%. According to the 2021 budget, the public deficit is expected to increase to 4.3% of GDP by expanding spending.

But despite inflation, the Turkish economy grows

The economic growth of the country’s gross domestic product grew from 7.2% to 21.7% in the first two quarters of the year, according to the Turkish news agency Anadolu. “Although the estimates of international organizations for this figure are 9%, we believe that we will reach double digits,” said President Erdogan about the economic growth forecast for the end of the year. Thus, the great beneficiaries of these monetary policies have been manufacturers and exporters, who have seen their competitiveness grow in the international market due to the fall in production costs, and the large owners of the Istanbul real estate market, who have taken advantage of cheap real estate loans.

According to the WB forecasts published in April 2021, GDP growth would be + 5% in 2021 and + 4.5% in 2022. For the IMF, the Turkish economy would grow at + 6% in 2021 and +3, 5% in 2022.

Moody’s reviewed the debt rating of Turkey on September 11, 2020, downgrading it to B2 with a negative outlook, highlighting the high dependence on external capital flows, as well as the distrust in the effectiveness of economic policies. Standard & Poor’s on August 17, 2018 downgraded its debt rating for Turkey with B + (stable outlook). Finally, the Fitch agency revised the rating on February 19, 2021 and maintains it at BB- with a stable outlook.

Finally, the foreign trade, seems to be another of Turkey’s keys to recovering its economy. Turkish exports and imports experienced an annual increase of 30% and 11.9%, reaching US $ 20.78 billion and US $ 23.3 billion, respectively, according to the Turkish Statistical Institute (TurkStat). Excluding energy and gold trade, Turkey’s exports and imports were USD 19.96 billion and USD 19.6 billion, respectively.

“The foreign trade surplus, excluding energy products, was US $ 1,380 million in September 2021,” said TurkStat. In the first nine months of 2021, Turkey’s exports grew 35.9% annually to reach US $ 160.95 billion, while imports increased 23.7% to US $ 193.3 billion.

The trade balance during the January-September period registered a deficit of US $ 32.3 billion, translated into a decrease of 14.6% compared to the corresponding period last year. The recipe from Turkey is not far from being taken by Argentina.

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