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Erdogan’s Economic Woes Grow Ahead of Key Elections in Turkey

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The Turkish economy has fallen into recession for the first time in a decade, according to data released on Monday. The timing could not be worse for President Recep Tayyip Erdogan with critical local elections scheduled for the end of the month. Photo Credit: Shutterstock

The Turkish economy has fallen into recession for the first time in a decade, according to data released on Monday. The timing could not be worse for President Recep Tayyip Erdogan with critical local elections scheduled for the end of the month.

According to state figures, the gross domestic product shrank by 2.4 percent in the last quarter, a sharper contraction than most predictions. The previous quarter saw a 1.6 percent decline, heralding two successive quarters of negative growth — the definition of a recession.

The Turkish economy is still reeling from the aftermath of last year’s currency collapse, triggered by President Donald Trump hitting Ankara with sanctions over the detention in Turkey of American pastor Andrew Brunson, who has since been released.

While the sanctions lasted only a few weeks, the currency crashed by around 30 percent, unleashing a wave of inflation, still running at around 20 percent. To stabilize the lira, Turkey’s central bank increased interest rates to 24 percent, one of the highest rates in the industrial world, strangling economic activity.

Turkey now faces stagflation, recession, and surging inflation. This comes at an inopportune time with Erdogan seeking to maintain ruling party control of Turkey’s largest cities in local elections on March 31. Opinion polls indicate the economy is the No. 1 concern for voters, an indication that the ruling AKP could face major losses across the nation.

Berat Albayrak, Turkey’s economy czar and Erdogan’s son-in-law, sought to put a positive spin on the latest economic data, maintaining that the worst was over. The problem “has been successfully dealt with in a very short space of time,” tweeted Albayrak.

While in the past Turkey’s economy has been resilient by recovering quickly from shocks, analysts warn this time it may be different.

“The biggest challenge is the extent of the debt buildup in the run-up to the exchange rate shock in August,” said economist Inan Demir of Nomura Securities.

“This is a key difference compared to the past shocks,” added Demir, “when the private debt burden was much lower. The deleveraging pressures (i.e., pressures to pay down debt accumulated earlier) will slow the pace of recovery.”

Taking advantage of worldwide low interest rates and unprecedented levels of liquidity, Turkey’s corporate sector and consumers have built up massive liabilities.

Over the past 10 years, the economy surged on debt-fueled growth. In 2017, the economy grew at a rate of 7 percent, one of the strongest in the world.

Now, Turkey’s construction sector is among the most heavily indebted. According to the latest figures, it contracted by 8.7 percent in the last three months. The industry, which is closely linked to Erdogan, is among the most labor intensive and a critical driving force behind the country’s unprecedented period of economic growth.

Turkey’s economic woes could worsen over renewed diplomatic tensions with the United States. Washington is warning of sanctions if Ankara goes ahead with the procurement of Russian missiles, which NATO warns is a threat to their weapons systems.

  (VOA)

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