Will Turkey's economic woes reach Europe?

10 August, 2018, 16:14 | Author: Regina Silva
  • Recep Tayyip Erdogan

The currency has lost more than 30% of its value so far this year.

Meanwhile, concerns were intensified on August 10 by a report in the Financial Times that the supervisory wing of the European Central Bank (ECB) had over the last weeks began to look more closely at eurozone lenders' exposure to Turkey. "Look at what we were 16 years ago and look at us now".

The lira pared some of its losses to trade at 5.9646 against the dollar at 0745 GMT, down 5.5 percent, after slumping as much as 14.6 percent to hit an all-time low of 6.4915 in early trade, according to Reuters data. Markets are deeply concerned over the direction of economic policy in Turkey where inflation has hit almost 16 percent while the central bank remains reluctant to raise rates in response.

Turkey will adopt a new economic approach under its executive presidency, one that will be decisive, sustainable and based on a "strategic mentality", Treasury and Finance Minister Berat Albayrak said on Friday. He has presented an economic action plan for the next 100 days.

"In most cases though, we suspect that this resilience will prove temporary", they said, highlighting expectations of rising USA interest rates and worries over growing USA protectionism.

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A new analysis by Berenberg Bank sees little long-term impact of high Turkish inflation and low interest rates on eurozone gross domestic product (GDP) growth.

European economist Carsten Hesse said Friday that even if the export of goods to Turkey falls 20 percent that would take no more than 0.1 percentage point from annual GDP in the 19 countries that use the euro currency.

In fact, TRY once again drops below the 6.0 mark after Erdogan said the country faces a wave of artificial financial instability.

An analyst at Berenberg bank in London is downplaying the risks to Europe's economy from Turkey's currency turmoil, saying the impact on trade would be small.

"Many of these European banks have their own non-performing loans and liquidity issues to deal with themselves".

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