Pumped with cheap and abundant credit since early June, Turkey’s economy has warmed up after a pandemic-ravaged second quarter in which it is estimated to have shrunk more than 10%. The revival, however, is fraught with risks, as the fresh slump of the Turkish lira demonstrated this week.

The loan-driven uptick in domestic demand has an array of side effects, including on inflation, which was near 12% in July, and the country’s gaping foreign exchange gap, which had already depleted central bank reserves, when the embattled lira took another nosedive Aug. 6, plunging to record lows. The economic warm-up might well prove a false spring and devolve into a stormy season in October.

The coronavirus pandemic hit Turkey at a time when the economy was already ailing and President Recep Tayyip Erdogan’s popular support was already on decline. In the contraction from March to May, unemployment is estimated to have hit up to 52%, based on the broad definition of joblessness. After reopening the economy in June despite concerns the pandemic was not fully under control, Ankara gambled on stimulating domestic demand by enticing consumers with cheap, long-term credit. The loan bonanza, led by public banks at the government’s behest, sparked a rush for homes and cars, including an unprecedented boom on the second-hand car market. White appliances and furniture sales have increased as well. Amid the rapid loan expansion, the consumer debt stock has reached 737 billion liras ($100.5 billion), increasing 25% in the past seven months. 

The revived demand set the wheels of the industry in motion, feeding expectation for further recovery.