Turkish heading for ‘soft landing’ After a journey involving some severe currency turbulence, Turkey’s economy is about to make a soft landing, says the man charged with piloting the economy.
Finance Minister Berat Albayrak said the economy’s perceived slowdown is in line with the government’s plan to change to “quality-based growth”, after the lira’s downward slide slowed years of rapid growth. The economy is expected to bounce back this year, meeting the growth target of 2.3 percent, Albayrak, who is President Recep Tayyip Erdogan’s son in law, said during an interview with Bloomberg Television.
However, the economy would continue to slow down before it improved, he added. “There has to be some slowing down,” he said. “This is a soft-landing strategy.” Others are doubtful that Turkey’s economy, the largest in the region, will get off so lightly. With industrial production in decline and consumer confidence waning, some are warning that the lira’s losses will shrink the economy during the first half of 2019.
Bloomberg forecasts show that Turkey’s economy will shrink for three quarters in a row this year. Numbers also highlight that gross domestic product grew at its slowest pace in three years between July and September.
As a result of these figures, Turkey’s policy makers and powers-that-be are trying to steer through choppy waters. They’re calling this period a “balancing” period, after the lira’s crash stymied bank lending last year. In response the Turkish government has channelled stimulus into its economy to invest in Turkey's sectors like manufacturing from experiencing a contraction.
In September, Albayrak unveiled a three-year economic plan, a cautious timetable for Turkey’s future. The minister’s growth target for 2019 is only a third of the pace that was set in 2017.
Last year’s drop in currency value, which saw the lira lose more than 25 percent of its value in August, was due to “economic warfare” from countries like the United States, Albayrak said. Whatever the cause, the drop pushed inflation to more than 20 percent, 15 points above its official target. It also impacted domestic demand, which is driving the economy.
In response, the Turkish central bank was forced to raise interest rates to the highest level in 10 years in September, against the direct policy of Erdogan, who favours keeping interest rates low. The currency has rallied, and Erdogan has been quiet in recent weeks about his former stance.
“The central bank is doing its job very well in the last couple of months and they have proved how independent and how strong they are,” Albayrak said. Turkey’s economic policies are also strong, he added.
“Monetary and fiscal policy alignment is the best in decades. You can only fight against inflation with both fiscal and monetary policies.” The minister has repeated his promise to curb public spending in an effort to tackle inflation.
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