I am optimistic, and here is my thesis in brief:

  • We are still dwelling in limbo. We will suffer the worst of this crisis both economically and politically until the local elections.
  • The economy started 2019 in recession, and will most likely not turn around soon.
  • The conditions in the outside world are of no help to our economy.
  • No foreseeable effect from diplomacy for the local elections.
  • Judging from how they are pumping Turkish-style populism, the AKP is either dragging behind in the polls, or is afraid to lose the big cities.
  • These will result in a situation not unlike May of 2018, during Pastor Brunson crisis.
  • No matter what the results from the elections will be, a stand-by agreement with the IMF after the elections is inevitable.
  • They may also push for a national stability program, but the burden would be much heavier.
  • We may draw out of recession near the middle of the year, but it won’t be a sudden reversal. Rather, it will look like this:

This recession is a tough one. Industrial and composite PMIs are falling fast

Confidence by both the consumer and the real sector has eroded

Real Sales in retail sector are falling down hard

Exports as the last front standing has stalled during December

Historical contraction in credit

Why won’t the recession end? Because private sector is reducing its leverage

The shrinkage in imports of intermediary and investment goods is a reflection of the negative outlook for production

  • Imports have been falling since June. In December of 2018, imports have gone down by 28% on a year to year basis while yearly drop in total exports was 4.6% to amount $223B
  • Energy imports increased by 1.9% yearly, but the whole of 2018 showed a jump of 16%.
  • Imports of investment goods have recessed by 23% in the third quarter and a further 31% in the fourth. According to this data, we may expect that investment goods expenditures will have negative impact on growth in the last quarter.
  • Imports of intermediary goods similarly fell by 11% and 20% in the last two quarters while consumer goods fell by 33% and 44% respectively.

When it comes to credit, banks have no intention to extend, and consumers have no intention to obtain any

According to a survey by the Turkish Central Bank, due to expectation for overall economic activity, the banks continue to restrict access to all type of credit. As for the first quarter of 2019, except for long term and foreign exchanges, credits extended to private sector and vehicle loans the same standards are expected to resume. Housing and personal loans, however, are expected to grow.

Corporate loans have mostly been restructured with no new sources coming

No help coming to Turkey from the outside

It is unlikely that the developing countries will receive much funding.  Even if they do, will Turkey be able to grab any?

Would you give credit in such a scenario?

Interest Rates in 2019 to be defined by this chart:

Why would the Fed stop rate increases? The United States is still growing at 2.6%!

Why would the Fed stop rate increases? Wages are on the rise!

No foreseeable effect from diplomacy for the local elections.

  • Trump won’t leave Syria before the safety of PYD-YPG is secured. Any military operation will face outrage from the US and play on the foreign exchange rates
  • We may agree on a security deal for Syria with the US, but we will end up in a Vietnam-like scenario where we are left to deal with Iran
  • Russia’s top offer so far is to situate Assad’s army on our border
  • There are hopes for visa-free travel with the EU as well as the renewal of our customs union. Standing up to EU is causing voter problems in the big cities as well as industrial and touristic districts

AKP is anxious. Polls are a mixed bag:


Pi-Ar Ankara and Istanbul Surveys:



Why do I think the AKP is behind in the polls?

  • Alliance with MHP
  • Binali Yildirim’s exile to Istanbul
  • Bekir Agirdir has been talking about a seismic shift in economic and political lines, rather than cultural ones. This will inevitably lead to alternative solutions.

A problematic survey for AKP

Populism is on the rise

  • 26% increase in wages
  • Extending the deadlines for amnesties
  • Reconstructing the debts by soccer clubs
  • Ziraat Bank’s new credit lines to pay off credit card debts
  • Electricity aid for low income families
  • No rise in tolls
  • Discounts for water use in Istanbul

What’s Next?

  • Possible interest rate decreases in February
  • No budgetary discipline in the works
  • Possible wage hikes for public servants and the retirees
  • Early collection of TCB and State Economic Enterprise dividends pointing to easing of the debt for February-March, and/or rate decrease

Do the local election results matter?

  • An AKP win will give Erdogan the mandate to continue his current policies
  • AKP losing Istanbul and/or Ankara may give way to early election talk
  • A new political formation within AKP possible

What is needed to end the recession?

  • $60B in new resources
  • A transparent review of corporate and bank non-performing loans
  • A safety net for balance of payments for domestic and/or international political and economic shocks
  • Assurances that stabilization and reform programs are in place and implemented
  • Improved relations with the West

Stability programs with or without the IMF

  • Current conditions cannot hold for long as an adverse move by the markets will bring Turkey to the edge, and/or early elections will surface.
  • A positive outcome from a stand-by agreement with the IMF will be the normalization of foreign exchange and a drop in interest rates.
  • If a domestic stabilization program will require at least 6 months for the outside investors to evaluate and decide whether to invest. The people will suffer until then.
  • Unplanned transition to Presidential system as well as economic policies contrary to norms and undue conflicts with the West caused much of the problems in the economy. 3% GDP growth is the best scenario new norm!
Originally published in Turkish by Atilla Yeşilada for Global Source Partners