Turkish economy's number one problem is uncertainty: Demiralp

The ongoing state of emergency and the crackdown on the Gülen movement after the failed coup attempt are generating uncertainties that are taking a toll on the Turkish economy, economist Selva Demiralp from Koç University in Istanbul has told the Hürriyet Daily News. 

The debate over shifting to a presidential system, steady divergence from the West, and the new U.S. administration's economic policies, also generate uncertainty and do not bode well for Turkey's economic situation, Demiralp added.
 

What do you see when you look at the current economic situation in the country?

Firstly, Turkey is an economy with has a very low savings rate, while we have a production structure in which we import intermediate goods. Both of these contribute to the wide current account deficit. That means we have to borrow from the rest of the world.

We are in a world where the dollar is appreciating against all other currencies. The U.S. Federal Reserve [Fed] is about to increase interest rates for a second time, and President-elect Donald Trump is saying he will pursue an expansionary fiscal policy. That means inflation in the U.S. is going to go up, and that in turn means the Fed will increase interest rates further, which means dollars will flow into the U.S. much faster. 

For countries like Turkey with external debt we have to find dollars, no matter what it takes. That's why the value of the dollar is appreciating against the Turkish Lira. Our Central Bank has been cornered into a situation because normally if your currency depreciates you have to raise interest rates. But after the July 15 coup attempt there has been an economic slowdown and there is a serious threat that Turkey could enter into recession.