Turkish Economy Likely Outdid Most Peers at Lira’s Expense
Turkish Economy Likely Outperformed Most Peers at Lira’s Expense
(Bloomberg) -- Turkey’s coronavirus-battered economy fared better than most peers in the third quarter, driven by a stimulus campaign that sacrificed the lira and price stability.
The $740 billion economy likely outperformed all Group of 20 nations except for China, thanks in part to a combination of interest-rate cuts, fiscal spending and a government-led credit push. Data on Monday will show gross domestic product rose 4.8% from a year earlier, according to the median of 14 forecasts in a Bloomberg survey.
To help businesses and consumers ride out the the pandemic, the Turkish government pushed banks to ramp up lending. Loan growth remained robust throughout the summer, slowing toward the end of the third quarter.
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“Turkey’s output probably regained its pre-Covid level in 3Q, one of the fastest rebounds in emerging markets. Activity will slow in 4Q on higher interest rates and a surge in the rate of Covid-19 infections. We expect growth to be around zero this year, before advancing to 4% in 2021.”
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At the same time, the central bank injected liquidity by scooping up government bonds, and delivered 1,575 basis points of easing until rate cuts stopped in June, leaving Turkey’s inflation-adjusted borrowing costs among the lowest in the world. The weighted average cost of funding dropped as low as 7.34% in July, then started growing for the rest of the quarter to end at 11.1%.
With the lifting of most virus-related restrictions imposed in the previous quarter, domestic tourism gained pace, and airports were opened to most foreign tourists.
The picture for the fourth quarter is less rosy as Turkey began reimposing limitations following a virus surge and replaced its central bank and economy chiefs. President Recep Tayyip Erdogan pledged to support his new economic managers with “bitter-pill” policies that conflict with his views -- but only after the currency hit record lows, keeping headline inflation in double digits. The lira has lost 24% against the dollar this year.
The central bank’s new governor, Naci Agbal, started his tenure by raising interest rates by the most in over two years, a move that could damp demand.
“The fourth quarter will point to a slower growth picture.”said Enver Erkan, an Istanbul-based economist at the Tera Yatirim investment house.
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