Turkey Economic Woes: What's next for the country's economy?

World
Europe

02:53

August was certainly a difficult month for Turkey - Although the government insists the economy is strong. A dispute with the US is stressing the country's currency and analysts worry there are other reasons behind the tension. CGTN's Michal Bardavid has more.

The Turkish lira has tumbled this year, following the Argentine peso on the list of worst performance major emerging markets currencies for 2018. It has lost more than forty percent of its' value over the last year.

MICHAL BARDAVID ANTALYA, TURKEY "Despite economic struggles, Turkish President Tayyip Erdogan stated that Turkey's economic infrastructure was strong enough to 'overcome the current turmoil,' while the Finance Minister Berat Albayrak stated they do not see a risk about Turkey's economy and financial system."

One of the country's main challenges is the current account deficit. The International Monetary Fund April forecast says it is poised to hit $49 billion dollars this year, up from $32 billion dollars in 2015.

MERT YILMAZ SALES MANAGER, NOOR CAPITAL MARKETS "Unfortunately, Turkey's current production model doesn't create a structural transformation – meaning that in order to manufacture, it still needs to import. So every year as the country continues to grow, it continues to face a trade deficit."

A second issue is inflation which reached nearly 16 percent in July. Though many economists believe interest rates should be raised, President Erdogan is in favor of low interest rates, which he describes as the "mother and father of all evil".

MERT YILMAZ SALES MANAGER, NOOR CAPITAL MARKETS "We first need to decrease the volatility of the currency, the size of the waves, then we need to take measures for the lira to strengthen against foreign currencies. But right now it doesn't seem like in the short term we have any weapons aside from increasing interest rates."

The volatility of the lira against the dollar has increased since Turkey has been in a political dispute with the U.S. over detained American pastor – Andrew Brunson who is charged with terror links. Turkey has rejected calls from U.S. President Donald Trump to release him. Yet, some experts believe the dispute has more to do with U.S. domestic politics.

ERAY GUCLUER FACULTY MEMBER, ALTINBAS UNIVERSITY "The elections to be held in November are a cause, the U.S.government needs these kinds of tools, I believe there is a very high chance this crisis will be over once the November elections are completed."

In the meantime, Turkey announced several measures to deal with the currency decline. On Friday, Turkey said taxes on lira deposits would be reduced, while those on foreign currencies would be increased. Turkish Finance Minister Berat Albayrak is also expected to announce details of an economic plan in mid-September. Michal Bardavid, CGTN, Antalya Turkey.