Turkey should adopt a “sufficiently restrictive” monetary policy to dampen inflation and balance growth or remain at the mercy of uncertain capital flows, the Organisation for Economic Co-operation and Development (OECD) recommended in a report on Thursday.
The report tells a familiar story: Turkey’s dramatic growth in the 2000s was mainly driven by domestic demand and has led to a large current account deficit and external debt. This leaves the economy vulnerable to turmoil in global financial markets as was seen in 2013 and earlier this year.
But the tightening is unlikely to come soon. Last month Turkey’s central bank opted to cut rates by 75 basis points to 8.75 despite inflation being almost twice the bank’s 5 per cent target.
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Hopes for an early release of disputed oil pumped from Kurdistan – but held in Turkey – are rising, a person familiar with the issue said. A resolution to a political impasse between the semi-autonomous Kurdistan region and Iraq could free up for sale millions of barrels of oil that have been stockpiled on the Eastern Mediterranean coast since the end of last year.
Oil has been flowing from Kurdistan – sometimes described as ‘the last great oil frontier’ with a potential 50bn barrels in reserves – through a newly-constructed pipeline to the Turkish export terminal of Ceyhan for more than five months. Continue reading »
By Anthony Skinner of Maplecroft
Even before the disaster of Tuesday’s explosion at a mine in western Turkey, questions were being raised about the future of prime minister Recep Tayyip Erdogan. It is yet another example of the volatility that seems to be perpetual in the country.
In recent months, the lira has gone from being one of the worst performing currencies in the world to one of the best. Many investors were reassured by the victory at March’s municipal elections of Erdogan’s centre-right Justice and Development Party (AKP), in the midst of a battle for influence and power with the moderate Islamist Gulen movement. Continue reading »
Turkey has a penchant for plastic. Over the past decade, consumers have gorged themselves on credit cards marketed aggressively by banks. The country now has more than 57m credit cards, up from fewer than 16m in 2002, in a population of 76m people. That expansion helped push the ratio of household debt to disposable income from 4.3 per cent in 2002 to 55 per cent by the end of last year.
Such indebtedness is causing misery: more than 1m people were unable to pay off personal loans or credit cards last year, nearly half as many again as in 2012. Continue reading »
By David O’Byrne of bne in Istanbul
Turkish football is no stranger to empty stadia, with the football authorities regularly ordering matches to be played behind closed doors as punishment for the misbehaviour of fans and players alike. But the April 20 derby match between fierce Istanbul rivals Fenerbahce and Besiktas was different. Continue reading »
The “fragile five” – Brazil, India, Indonesia, Turkey and South Africa – have had a torrid time since Morgan Stanley identified them last year as countries particularly vulnerable to the “tapering” of US monetary stimulus because of their large and rising current account deficits. Continue reading »
Food and beverage vendors and technology firms are most vulnerable among those Turkish companies with hard currency debts to the lira’s sharp depreciation, according to a survey of 10 corporations by Fitch, the credit rating agency.
Assuming a 30 per cent depreciation in the lira against a basket of currencies since the end of 2012, Fitch examines which companies have the highest proportion of their earnings in lira versus debts in hard currency – a transgression known as “original sin”.
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Turkey’s banks are having a bad time. The sector’s 16-bank MSCI index fell by as much as 15 per cent during the past month, hitting a price-to-book ratio of less than 1 for the first time in five years.
Perhaps that isn’t surprising given that higher interest rates, slower growth and a cheaper lira are likely to persist, while credit expansion won’t sustain its rapid pace of the past decade. In 2013 alone the volume of loans rose by just shy of 30 per cent and the ratio of banks’ loans to deposits currently stands at 107.7 per cent, after breaching the 100 per cent level in 2013 for the first time in at least a decade.
So, how well prepared is the financial system for the end of a world of easy money and abundant capital inflows?
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If market consensus is correct, Turkey’s central bank will raise interest rates on Tuesday evening. It’s an issue that has gripped investors, partly because of the opacity of Turkish monetary policy over the past central years. But putting the mechanics to one side, what would be the impact of tighter monetary conditions on Turkey’s economy?
Beyondbrics has taken a look. Continue reading »
The FT today publishes a special report, Investing in Turkey, on the challenges facing the country’s government and private sector as it struggles to gain competitiveness and deal with one of the most daunting current account deficits in the developing world. At 13.00 GMT, Daniel Dombey, Turkey correspondent, and freelance writer Andrew Finkel will host a live discussion on Twitter on the country’s economic and political future. Here, Dombey outlines the difficulties Turkey faces in delivering the investment needed for growth. Continue reading »
Credit card debt is the latest frontline in Turkey’s bid to make its economy less vulnerable. For several years, the country’s technocrats have fretted about rates of loan growth running at an average of about 30 per cent a year.
So the country’s banking watchdog took a dramatic step last week to get the phenomenon under control, with new rules limiting credit card borrowing limits. Continue reading »
This week, Turkey reported better than expected growth figures. But Thursday, it came out with worse than expected current account figures – a $5.8bn deficit for July, compared with an expected $5.5bn or so.
So the phenomenon widely seen as the Turkish economy’s biggest Achilles heel – the deficit that makes the country deeply reliant on foreign funds – is still stubbornly large. This at a time when foreign resources are expected to be in much less bountiful supply, due, among other factors, to the prospect of US Federal Reserve tapering its monthly bond buying programme. Continue reading »
In these days of increased scrutiny of emerging markets, it is always important to keep a close eye on the most telling numbers about an individual economy.
One such figure came this week, when Turkey reported a higher than expected rate of growth for the second quarter – 4.4 per cent, compared with expectations of 3.5 per cent or so. There were other stories tucked away in the data – notably the importance of household consumption, state spending and inventory building in boosting demand, even as private sector investment declined. But overall the news was certainly a fillip to the government in a difficult economic environment. Continue reading »
By Anthony Skinner of Maplecroft
Previously respected for his political vision and acute instincts, Turkish Prime Minister Recep Tayyip Erdogan may increasingly become a liability for his ruling Islamist Justice and Development Party (AKP). The premier’s campaign to quash dissent in civil society and the business community, his righteous criticism of EU and fellow NATO allies, and impressive array of conspiracy theories are a big concern. Continue reading »
Turkish house prices are on a seemingly endless rise. The latest figure, for May 2013, shows an increase of 12.2 per cent annually.
Turkey is used to double digit house price growth rates. Since the Central Bank of Turkey started producing its house price index in 2010, growth rates have almost always been in double digits, and rising. But economic growth has slowed from 8 per cent plus to around 2 per cent. Chart of the week takes a look at what is driving the market. Continue reading »