Is Turkey Changing Course? What is Really Happening in the Country

The Resurgence of Turkey’s Economy: A Closer Look

Turkey has been attracting increasing interest from investors as one of the emerging nations to watch.
Despite its longstanding state of crisis, the country seems to be showing signs of recovery, especially in its efforts to attract foreign investors seeking profits.

Turning Point for Turkey

In recent years, Turkey has garnered the attention of economists and financial analysts due to President Erdogan’s unorthodox policies, such as pushing for lower interest rates despite soaring consumer prices.

The country has faced one of the world’s highest inflation rates, as President Recep Tayyip Erdogan prioritized growth at all costs.
However, a shift in political direction is now underway, drawing back some of the foreign investors who fled during the currency collapse.

Reeling in Foreign Investors

Stricter monetary and fiscal policies have been instrumental in bolstering the resurgence of Turkish stocks and bonds.
The benchmark stock index has surged over 40% in dollar terms since Erdogan’s reelection last May, ranking among the world’s top performers.

Last month, Turkish lira bonds attracted a record $6.5 billion in foreign inflows.
Engaging in dollar borrowing and investing in the Turkish currency has become a compelling move for foreign investors, making it the most profitable carry trade in emerging markets.

Positive Economic Indicators

Bloomberg Economics estimates that nearly $20 billion in carry trade inflows have flooded into the country since late March.
The Turkish government is also on track for a more stringent fiscal policy, with recent measures including spending cuts and the introduction of a minimum corporate tax.

Despite significant improvements, Turkey is still grappling with a substantial budget deficit, projected to be one of the largest in Erdogan’s two-decade tenure.
The government aims to mitigate this deficit, targeting a total deficit of 2.7 trillion lira, equivalent to 6.4% of the gross domestic product.

Challenges Ahead

While officials assure that the worst is over, many Turkish households anticipate further inflation acceleration and higher financing costs.
Inflation has surged to nearly 76% in May compared to the previous year, with food prices soaring over 50% since the beginning of 2022.

The tightening of lending rules and skyrocketing interest rates have restrained the credit boom.
As a result, non-performing loans are beginning to rise, prompting concerns about the social impact of economic policy changes.

President Erdogan’s patience may wear thin in the face of these challenges, potentially leading to premature interest rate cuts to alleviate political pressures.
Despite assurances of a brighter economic outlook, investor confidence in Turkey remains distinct from the sentiment among its citizens.