On the surface, the signals coming from the Turkish economy are enough to make anyone in Europe envious. 8.2% growth in the third quarter; foreign direct investment between January and October up 84% year-on-year; exports at a historical high of $134 billion in the past year.
But every piece of good news is now accompanied by a warning that the economy is overheating and heading for a crash. Citigroup says (via the FT) that “the composition of growth remains grossly unbalanced”.
The widening current-account deficit is one of the biggest danger signs, despite the Central Bank’s breezy reassurances that everything is under control. The latest figures show that the current-account deficit has reached almost 10% of GDP. One of the biggest causes of the deficit, according to a Turkish economist, is Turkey’s enormous energy import bill, which stands at around $50 billion. The dire picture in the Eurozone, one of Turkey’s biggest export markets, will also hurt the economy, whilst inflation is rising fast and may hit double digits.
To prepare for a slow landing, the IMF has proposed a raft of fiscal and monetary measures. There is a sense among economists that the steps taken by the government and the central bank have been too limited to make much of an impact.
The government’s reaction to these dire warnings has been in keeping with its attitude towards many other issues: dismissiveness, hostility, and irritation that a pessimistic outlook is distracting from grander things.
Economy Minister Zafer Çağlayan, in particular, is ruffling his feathers. He knocked back the IMF’s 2% growth forecast for next year, predicting that the Fund would revise its projections upwards and that Ankara would stick with its own 4% forecast. He has also said that Turkey’s current growth rate showed that the country is “unique” and that “We did not surprise anyone; we just amazed them.” Deputy PM Ali Babacan said that Turkey’s midterm growth performance would be “beyond our expectations”.
Similarly the ambitious goal of zero interest rates – a pet project of PM Erdoğan, who is not an economist - has been couched in language which has ranged from populist to conspiratorial, with Çağlayan saying that sceptics were seeking to “suck the blood” from the economy and keep it indebted to foreigners.
This taps into a long-standing narrative of Turkey being manipulated by sinister outsiders, and doesn’t create much confidence among markets and international finance institutions. The AKP’s instinctive reaction on the economy, as on other issues, is to put politics before policy. That’s fine when times are easy, but dangerous when the economy is on a knife edge. Pride comes before a fall.