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Turkey´s Economic Storm

Autor:   •  November 26, 2018  •  Essay  •  1,378 Words (6 Pages)  •  401 Views

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TURKEY´S ECONOMIC STORM[pic 3]

Turkey is facing an economic crisis, the annual inflation rate has reached 17,9% in August. Since the beginning of the year, Turkish Lira has decreased around 62% relative to the US Dollar. Tense relations with the United States of America resulted in the increase of tariffs on Turkish products. Thus, these factors have enormous implications not only for investors as well as for other nations, on the grounds that the financial crisis can be spread across countries' boundaries. International Banks like BBVA, HSBC, ING, and BNP are truly exposed to Turkey.

Analysing Turkish economic situation without considering their sui generis political system is slightly impossible. Consequently, in a secular country, there is a strict relationship between state and religion. Thus, quotes like “If they have their dollars, we have our God” are usually made by Recep Tayyip Erdogan. For instance, these public statements promote the fear in investors and consequently in financial markets. Furthermore, Turkey's President has been in power since 2014, however, he was the Prime Minister between 2003 and 2014, as a result, he had a crucial role in the economic situation of the last 15 years. In 16 April of last year, there was a constitutional referendum that ended with Recep Tayyip Erdogan increasing his power.[pic 4][pic 5]

But what was the main event that triggered this diplomatic crisis with the US? In August 1st, the US imposed sanctions against Turkey because of government’s action, that consisted in refusing to release an American pastor who was detained two years ago.

In order to understand Turkey's economic situation, it is essential to analyse economic performance in recent years. In 2008, Turkey’s agreement with IMF expired. Since then, GDP at Current Prices has reached enormous growth rates. For instance, in 2017, GDP at Current Prices grow at a rate of 19,1%. However, to better understand this expansion, it is mandatory to consider inflation in order to know the real growth. Afterward, considering that, in 2017, inflation stands at 11,92%, which means real GDP growth hit 6,41% (figure 1). [pic 6]

Despite the low Debt-GDP ratio (28,3% in 2017), Turkey recorded a Current Account deficit of 5,5% of GDP. [pic 7][pic 8][pic 9][pic 10]

In 2017, according to the World Travel & Tourism Council, tourism represented 10,4% of Turkey’s GDP and the forecast for 2028 stand at 11,4%. Although, these last economic events could not be considered in this forecast and Turkey Terrorism Index has peaked at 7.52 (in a scale from 1 – minimum to 10 - maximum), which is undoubtedly an unattractive factor for tourism.  On the other hand, with the depreciation of Lira, travelling to Turkey will be cheaper for foreigners. [pic 11]

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