Turkish economy still cool since 2018 halted Erdoğan's strong growth streak

Reuters

Turkey's foreign trade deficit has surged beyond $45 billion this year, data showed on Dec. 31, as fallout from the coronavirus pandemic extended the worst economic slump in President Recep Tayyip Erdoğan's nearly two decades in power. The sharp trade imbalance, including a jump of $5 billion in November alone, approached the $55 billion deficit logged in 2018, when a currency crisis marked the end of years of hot economic growth fuelled by cheap foreign credit.

Since mid-2018, year-on-year growth has averaged roughly 0.5% due to a roller-coaster of recession, strong recovery and another deep contraction in the second quarter of 2020, when the economy was mostly shuttered to curb COVID-19.

Before that, steady annual growth of around 5% propelled Erdoğan to five straight election wins, the last in 2018. But since then, the lira has halved in value and it was down 0.5% on Dec. 31.

This year alone, it has lost 20% against the dollar, the second-worst performance among emerging market currencies - despite rallying in the last two months since Erdoğan overhauled his economic leadership and pledged a new, market-friendly era.

Economists expect the $760-billion economy to narrowly avoid a contraction in 2020.

Measures to curb COVID-19, which has killed nearly 21,000 people in Turkey, have slashed key tourism revenues in a country already heavily reliant on imports.

A dollarisation trend, including a record $235 billion in local hard-currency deposits last week, exacerbated the chronic trade deficit.

The deficit in the first 11 months of the year jumped some 83%, the Turkish Statistical Institute said. Exports fell 8.3% while imports rose 3.5%.

Erdoğan appointed Naci Ağbal as central bank governor in early November, and he has since hiked rates by 6.75 percentage points to cool double-digit inflation. The bank's policy minutes showed on Dec. 31 price pressures could rise.

"With a tight monetary policy stance (and) potentially falling current account deficit, we believe the nominal strengthening in the lira ... may remain relatively stable in 2021," Gedik Investment Research said in a note.

Erdoğan also named a successor to Berat Albayrak, his son-in-law, who abruptly resigned as finance minister in early November. Since then, foreign investor inflows totaled some $15 billion after years in the other direction.

Istanbul's main stock index has also rallied sharply since early November and is set to end the year almost 30% higher.