What is happening with the Turkish economy? This question was a top issue last year and is likely to continue to dominate discussions both internationally and in Greece. Rating agencies, international investors and banks have recently started to give Turkey a vote of confidence. The numbers have gradually begun to prosper and the big bet now for the government of Recep Tayyip Erdoğan is for the citizens to begin to prosper.
Moody's Ratings upgraded the country's credit rating for the first time in more than a decade, stressing that Turkey's governance and economic policies have improved. The international agency raised its credit rating to B1 from B3, maintaining a positive outlook. Moody's underlined that the country has recorded improvements in governance, citing in particular «a decisive and increasingly firm return to orthodox monetary policies, which are yielding the first visible results in terms of reducing the country's large macroeconomic imbalances.».
At the same time, Turkey managed to stand out with an astonishing increase of over 157% in the annual global ranking of wealth per adult between 2022 and 2023, in the Swiss bank UBS' Global Wealth Report 2024, leaving all other countries far behind, despite the high levels of inflation in the country. Inflation in Turkey stands at nearly 72%, a figure that is a blow to its 85 million residents, many of whom have seen their purchasing power decline dramatically in recent years.
The houses saw improvement
But these were not the first signs of an economic miracle in Turkey. In March, Fitch also upgraded the country's credit rating, arguing that «the government's return to orthodox economic policies reduces risks to financial stability and balance of payments pressures». The rating agency upgraded Turkey's credit rating by one notch to B+ from B+ with a positive outlook.
Going back a little further, one will notice that optimistic news about the Turkish economy seems to be the trend of the last year. As early as the summer of 2023, a few months after the re-election of the Erdogan in his third term as president - there were concerns that he would lead the country into economic chaos - Moody's had reported that Turkey's credit rating was on an upgrade path.
Turkey's economy grew 4% in Q4 2023, exceeding market expectations, as strong domestic demand offset the impact of the devastating earthquakes and the slowdown in its main trading partners. The country's GDP is expected to reach $1.1 trillion in 2024 and foreign investment continues at a steady pace.
180 degree turn
To win re-election, Erdogan mobilized billions of dollars in campaign promises, while tens of billions more were needed to prop up the Turkish lira. In order to attract the confidence of foreign investors again, the country from June 2023 onwards reversed its fiscal and monetary policy and began a cycle of large interest rate hikes under the supervision of the finance minister Mehmet Simsek. Simsek vowed to return to rational economic policies, announcing that he would give priority to macroeconomic stability.
Turkey seems to have left aside Erdoganomics, whose basic principles were the view that high interest rates cause inflation and not the other way round and that a commitment to keeping interest rates as low as possible is required. In the past, central bank governors who disagreed with Erdogan's agenda were summarily dismissed...in the past. A typical example is Naji Abal, who was fired in March 2021 after just four months in office. With the appointment of his replacement Sahap Kavtzioglou, a former ruling party MP, Turkey experimented with aggressive interest rate cuts at a time when inflation was close to 20%.
This practice led Turkey to the threshold of a currency crisis. Inflation soared to over 80% and the lira fell dramatically, forcing the Central Bank to sell significant foreign exchange reserves to try to prop up the currency. The current account deficit widened to a record high in January 2023 and the strong earthquakes the following month further aggravated the situation.
Is he preparing the succession?;
The question that arises is whether Turkey is really leaving Erdoganomics behind or whether it is just a temporary compromise. For some analysts, Erdogan may be motivated by a desire to hand over a better economy to his successor (presumably either his son or son-in-law), who may not enjoy the same levels of popularity as the «sultan».
