For President Recep Tayyip Erdogan, it was proof that Turkey is the world’s fastest growing economy and a warning to ‘agitators’ who wish the country ill.
But economists warn that Turkey’s stunning 11.1 per cent growth in the third quarter — its best reading in six years and well ahead of India and China in the same period — masks potential risks ahead.
Inflation hit its highest annual rate last month at 12.98 per cent, the Turkish lira has lost 11 per cent of its value since September and the country’s current account deficit is worsening.
With construction booming thanks to cheap credit and high government spending, the economy risks overheating in a classic boom to bust scenario.
A full blown crisis, however, is far from inevitable and the central bank has the chance to restore confidence in the lira with a critical interest rate decision.
“The economy is growing beyond its long run potential. That is the definition of overheating. The 13 per cent inflation rate is another sign for overheating,” Selva Demiralp, associate professor of economics at Koc University, said.
Erdogan said this week Turkey would likely grow around 7.5 per cent in 2017, an estimate echoed by most economists.
The president’s popularity since his ruling party was first elected in 2002 has been largely based on efficient economic management that pulled Turkey out of its 1999-2000 economic crisis.
Deniz Cicek, an economist at QNB Finansbank Research, said thanks to inflation likely to remain above 10 per cent next year and the current account widening “uncertainties over the economy will prevail”.
But Erdogan’s senior economic adviser Hatice Karahan described the economy as “very resilient” having come through the 2016 failed coup with growth driven by domestic demand.
But she acknowledged growth had to “deal with the unemployment problem” while inflation was “definitely higher than the target”, during a foreign media briefing.
“Unfortunately, the inflation rate is settling at two digit levels and the Central Bank is drifting away from inflation targeting,” said Demiralp.
“An economy cannot grow at the expense of inflation. Because uncontrolled inflation eventually causes higher market rates and hits the economy back,” Demiralp said.
There have even been rumours over whether the risk of looming bad economic news could encourage the government to bring forward elections scheduled for November 2019. — AFP
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