Turkey's economy is slowing down, its currency is record low against the dollar and many firms are facing great foreign debts. So how did Turkey get into this economic mess? Turkey has grown substantially over the last decade, after the global financial crisis. This rapid economic growth was field by cheap credit pouring into the country. For many years, Turkey enjoyed this foreign funded construction boom. This came to an end when the U.S. Federal Reserve announced a scale-back in its stimulus program last summer. Suddenly, Turkey had less cash to invest. With the U.S. economy gaining more security after the crisis, investors began pulling their money out from emerging markets.
Turkey's growth slowed to around two percent and inflation rose to 7.4%. The country's currency slumped even further in January. This forced Turkey's central bank to make an economic decision, by doubling interest rates from 7.7 to 12 percent. This is a clear indication of the banks determination to prevent foreign capital outflows.
Turkey is an example of a country that worked its way up to reach the top, but had to short live that position because of its weak economic structure.
ReplyDeleteTurkey will be repaying 48 billion of its domestic debt and 3 billion of its foreign debt through bond auctions. However this is a very small number as 47% of Turkey's GDP is made up of debt.
I see similarity in Turkey's economy to Italy's and Greece's over the years. Corrupt government influences the economy in a way that isn't beneficial long-term. Short-term sustainability is almost worse than no benefit short-term, simply because people have expectations that the economy will sustain long-term, whereas when the economy is in bad condition, people have more urgency to correct things that will help benefit the economy. I think their short-term success was very misleading
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