Turkish economy is softening but ‘no sign of contraction now’

Turkey’s economic growth has softened but government moves to cut tax and accelerate the transfer of billions of lira to the Treasury mean Ankara currently sees no recession or negative growth, Finance Minister Berat Albayrak said. After years of strong growth, fuelled by break-neck construction projects and cheap loans, Turkey’s economic growth slowed sharply in the third quarter of last year to 1.6%. A Reuters poll last week found that it has started contracting and will not grow again until the second half of this year.


The slowdown has underscored the damage caused by a currency crisis last year when the lira lost 30% against the dollar, driving inflation up to 25% and forcing the central bank to hike interest rates drastically. Albayrak predicted the slowdown would be less serious than economists believe.Growth will bounce back strongly and the government’s overall 2019 growth target of 2.3% was still in reach. “Currently we don’t see any recession, there is no minus growth,” Albayrak said on the sidelines of the World Economic Forum in the Swiss ski resort of Davos. Turkey announced several measures in the last four months to soften the economic slowdown, including a temporary lifting of taxes on purchase of cars and white goods and an early transfer of 37bn lira of Central Bank profits to the Treasury.It also hiked the minimum wage by a quarter and rolled out a $3.7bn loan package for small businesses two weeks ago.

Turkish Treasury

Turkish Treasury and Finance Minister Berat Albayrak speaks during a presentation in Istanbul (file). Turkey’s growth will bounce back strongly and the government’s overall 2019 growth target of 2.3% was still in reach, he said yesterday on the sidelines of the World Economic Forum in Davos.

“The necessary actions that we have taken so far, starting from late October…definitely has a significant effect,” Albayrak said. The wage rise would have only a muted impact on inflation and was not a sign that President Recep Tayyip Erdogan’s government was loosening purse strings.“When it comes to fiscal slippage… it is not going to happen,” he said.The minister said he had always insisted that interest rates were the central bank’s business, not his. “I don’t know what they are going to do (at their next policy meeting) in March. But I know whatever they do, they do on an analytically rigorous basis.” Last year’s meltdown in the lira was exacerbated by tensions with the US centred on the two-year detention of an American pastor in Turkey.


US President Donald Trump imposed extra tariffs on Turkey metal exports and briefly sanctioned two Turkish ministers. Washington’s renewed sanctions on Iran could also test relations again with Turkey, a major importer of Tehran’s gas. But, pointing to a temporary waiver for Turkey’s gas imports, Albayrak said Ankara had no immediate plans to cut Iranian imports, although it aimed to reduce dependency on energy imports in the longer term. He also played down a tweet from Trump last week that Turkey could face economic devastation if it attacked the US-backed Kurdish YPG militia in northeast Syria once US troops pull out. “When you compare the effect of his remarks with the ones that we had last summer, it was significantly less,” Albayrak said. “Despite the headlines, the underlying co-operation between the two countries is pretty sound.”

Sources and photo-credits: Reuters, Gulf Times