Turkish economy set for 'sharp downturn', economists say
Economists are predicting a "sharp downturn" following a decline of the lira, which is likely to bring a rise in essential imported goods such as a medicine and fuel, The New York Times reports.
The lira lost seven per cent of its value in August alone, which has led to higher prices for food and goods, prompting anger from citizens.
"Everything is unbelievably expensive," 41-year-old maths teacher Derya told the publication.
The lira briefly rose last week after President Recep Tayyip Erdogan discovered a gas field in the Black Sea, but it did not last.
The government pushed banks to lend more in an effort to counteract inflation rates, which stand at 12 per cent. In addition, foreign investors lost confidence in Turkey due to the economic crisis of 2018, driving down demand for the lira.
Analysts said the central bank is borrowing dollars deposited in Turkish banks by businesses and residents.
"This is a train wreck in slow motion," said Ugur Gurses, a former central banker who writes about the Turkish economy.
Dropping currency spells trouble
Earlier this month Turkey’s lira dropped to 7.3677 against the dollar before making a recovery – another historic low.
The drop is fuelled by high inflation, a wide current account deficit and the Turkish government’s push for cheap credit to drive an economy that was already fragile before the COVID-19 pandemic hit.
Analysts have expressed concerns over the level of Turkey's reserves and Turkish President Recep Tayyip Erdogan’s aversion to high interest rates.
Turkey had been hoping for an influx of foreign currency through exports and tourism revenues, but the pandemic has sharply undermined the tourism industry and disrupted global commerce.
Speaking about it at the time, Erdogan said "there are serious zigzags in the global economy after the pandemic".
He added: "I believe the Turkish lira will fall into place ... these are temporary fluctuations."