Turkish markets undergo two-month slump
A series of domestic and external risks, coupled with the global surge of the dollar, spur an alarming downturn in the Turkish economy.
Turkey’s economy has been on a downturn over the past two months. Inflation and interest rates are on the rise and growth has slowed, with industrial output almost grinding to a halt. All this is in addition to a slumping stock market and the Turkish lira losing ground against the dollar.
Turkey’s image as a “safe harbor” has been rattled by a series of internal and external factors. Investors have grown anxious over the civil strife in neighboring Iraq and Syria, the Islamic State (IS) threat, the bill of some 1.5 million refugees climbing to $3.5 billion, the decrease in exports to regional countries, preparations for a possible ground operation in Syria and the risk of Turkey entering the war, provocative Kurdish moves in Turkey’s southeast, including the torching of an Ataturk monument and renewed attacks on the army and police, as well as harsh messages from Kurdish rebel commanders that threaten to derail the settlement process. The upcoming reviews of credit rating agencies have further stoked the market jitters.
Yet, the main reason fanning the anxiety is the prospect of the United States raising interest rates as of mid-2015 as part of a policy to end monetary expansion. Such an eventuality would mean an outflow of foreign currency from emerging economies such as Turkey, hence the slump in the Turkish lira and the stock exchange and the rising interest rates.
The lira’s two-month depreciation and its impact on other financial instruments illustrate vividly the scale of the downturn.
