Turkey's economy gives alarming signals amid rising political tension

The lowest growth rate of the last six years, rising inflation and current account deficit with the declining trend in the capacity usage have raised the question marks over the health of Turkey's economy.

 

According to recent figures the economy grew 1.9 percent in the second quarter of 2008 compared to last year’s 4.1 percent. The growth rate was 6.7 percent in the first quarter.

 

Turkey, which has one of the highest interest rates in emerging markets, expects 4.5 percent growth in 2008, a sharp downturn from several years of growth near 7 percent.

 

With the double digit consumer price index inflation hitting 11.77 percent, $47 billion year-on-year rapidly increasing budget deficit and falling capacity usage figures in August, the investor confidence started to be more shaky in Turkey and the risk premium tends to rise for the country.

 

Analysts have been warning the government for taking steps to increase the resilience of the economy amid global credit woes. The government had so far failed to take necessary precautions.

 

Turkey's lira currency weakened and the stock market's loss increased after announced data combined with the negative effect from global markets.

 

Lira lost 2.5 percent against dollar and fell to 1.2680 on Thursday however it recovered to 1.2610 on Friday as stock market also lost 4.85 percent on Thursday but slightly rose 0.48 percent on Friday.

 

However, the rise in the risk premium is not only due to economical developments but also the latest incidents in the political arena.

 

The claims of a link between an ongoing fraud case on Deniz Feneri, a German-based charity, and ruling Justice and Development Party (AKP) raised the question marks over the political stability and triggered Prime Minister Tayyip Erdogan to attack country’s largest media group for its publications on the details of the scandal.

 

Analysts fear that the fraud case could eventually result in a new closure attempt for the ruling party. On the other hand Erdogan’s recent attack on Dogan Group is seen as a factor contributing to the risk premium.

 

The AKP hardly survived a closure case in late July, however the top court issued a serious warning for the party, signaling its acts would be monitored.