Turkey is in trouble again

Turkey's currency has slipped to an eight-month low against the US dollar, after a 40% slump in the first half of last year. The economy shrank by 3% in the fourth quarter of 2018 and inflation has reached almost 20%.

By Marina Gerner
published

Emerging-market investors have turned their attention to Turkey again. The Turkish lira has slipped to an eight-month low against the US dollar; this follows a slump of 40% in the first eight months of last year.

President Recep Tayyip Erdogan, Turkey's increasingly authoritarian leader, has often accused foreign powers of orchestrating the currency crisis. Turkey has charged JPMorgan with "causing volatility" that prompted a run on the Turkish lira, says Carlotta Gall in The New York Times.

In truth, the sell-off shows that factors driving last year's currency crisis, such as geopolitical tensions and domestic policy, haven'tgone away, says Jason Tuvey on Capital Economics.

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Erdogan has picked another fight with the US, criticising Donald Trump's intention to recognise the Golan Heights. Meanwhile, his habit of putting pressure on the central bank to keep interest rates low is a recurrent headache.

The Turkish economy shrank by 3% in the fourth quarter of 2018 and inflation has reached almost 20%. It now seems the pace of economic contraction is "starting to ease", says The Economist. But a cyclical recovery won't resolve longer-term issues such as cronyism and mismanagement. The worry is that "populism, not liberalism, represents Turkey's factory settings, to which it has returned" after a few years in which it appeared to be embarking on the path ofpro-market reform.

Marina Gerner

Marina has a PhD in globalisation and the media from the London School of Economics, where she worked as a teaching assistant on the MSc Global Media. In 2014 she was invited to be a visiting scholar at Columbia University's sociology department in New York.

She has written for the Economists’ Intelligent Life magazine, the Financial Times, the Times Literary Supplement, and Standpoint magazine in the UK; the New York Observer in the US; and die Bild and Frankfurter Rundschau in Germany. She is trilingual and lives in London. She writes features and is the markets editor at MoneyWeek..

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