All the day’s economic and financial news, including new growth figures for the UK and the financial crisis in Turkey
- Latest: Trump hits Turkey with higher tariffs
- Lira has plunged almost 20% today
- Erdogan urges public to buy lira
- US and Turkey clash over jailed pastor
Three summers ago, Greece was forced to impose capital controls to prevent a run on its banks, as its future in the eurozone hung in the balance.
Gavin Friend, senior market strategist at National Australia Bank, believes Turkey could soon be forced into similar measures:
“Though hiking rates would be the market’s preferred option for Turkey to stem this crisis and help deal with inflation this seems unlikely given what we heard from President Erdogan today.
If we assume IMF assistance is out of the question from both sides, that leaves capital controls. That is problematic given Turkey’s need for foreign inflows – but of course they won’t be coming for now and stemming the flow the other way is the issue. This won’t help in building trust between Turkey and international investors.
Paul McNamara, investment director at asset management firm GAM, has written a fine explanation of the causes of Turkey’s economic woes:
“We think that Turkey has a toxic combination of a weak external position (current account deficit), excessive private sector debt and a high level of foreign funding in the banking system. This is coming to a head as a much-needed demand slowdown is causing asset quality problems in the banks. The role of construction in the economy for example is comparable with that in Spain or Ireland ahead of the European bust.
“We think the Turks have exhausted the possibilities of rate hikes, and are backed into a corner by their inadequate level of currency reserves (the IMF thinks that Turkey has the least adequate level of reserves of the major EM economies. The country’s politics are also a problem with the President’s son-in-law as Finance Minister and perception of political interference with the “independent” Central Bank.
Trump doubles Turkish tariffs as lira plunges to record lows – business live