From Breakingviews: Though Turkey will enjoy a reprieve from economic turbulence in 2020, the reckoning will come later, says dasha_reuters
Turkish President Tayyip Erdogan makes a speech during a ceremony marking the second anniversary of the attempted coup at the Presidential Palace in Ankara, Turkey, July 15, 2018.
LONDON - Turkey will enjoy a reprieve from economic turbulence in 2020. There will be more government spending and interest rate cuts to ensure the economy gets somewhere close to President Tayyip Erdogan’s growth target of 5% for the year. Yet inflation may well remain under control. The reckoning will come later.
The government’s growth goal appears punchy at first glance given the economy is expected to grow at a tenth of that rate in 2019. But the economy will have tailwinds. First, Murat Uysal, who was appointed the head of the central bank in July, is proving more amenable to monetary easing than his predecessor. He has already cut the main policy rate by 12 percentage points between July and December to 12%. More rate reductions are likely in the coming year.
Expansionary policies may push up consumer prices, which rose 11% in November from a year earlier. Even so, the relative stability of the lira means that inflation will be less than half of its 2018 peaks. Inflation surged to almost 25% that year as steep falls in the local currency pushed up the price of imported goods. But tactics such as foreign exchange curbs and state banks withholding lira liquidity helped the currency hold its ground in 2019, even in the face of geopolitical drama.
Vulnerabilities may, however, gradually build up over the course of the next 12 months. State banks are lumbered with non-performing loans and Turkish companies’ foreign-currency exposure is sizable with almost $180 billion more in liabilities than assets as of September.
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