Facing US sanctions, credit-fueled Turkish economy heads toward turbulence
Through measures to free up capital flows, Turkey’s economy weathered the 2018 currency crisis, but analysts remain uncertain the nation’s markets can absorb more shocks as US sanctions loom.
Following a currency crisis sparked by US-Turkey tensions last year, the Turkish lira recovered much of its losses and remained fairly stable through 2019. Economic difficulties persisted with high unemployment, slow growth and grim news reports of families committing mass suicide due to their inability to pay off debts — but overall, Turkish markets proved more resilient than expected.
Now, as Washington lawmakers take steps toward imposing sanctions on Turkey for its acquisition of the Russian-made S-400 missile system and its recent Syria incursion, analysts remain uncertain the nation’s economy can sustain further instability in the year ahead.
“At times like this, small triggers may cause sharp fluctuations in financial markets and it is important to be cautious and develop right policies,” Selva Demiralp, an economics professor at Koc University, told Al-Monitor. “Sanctions may work as one such trigger.”
Demiralp said the Turkish economy is expected to end the year with a growth rate of about 0.5%. The burden of nonperforming loans on the private sector continues to weigh on economic recovery, and the issue remains unresolved, as monetary policy has largely focused on freeing up capital flows to stimulate spending and borrowing.
