The “Turkish Trilemma” and the Road to November 2019
* On the global front, we have “growth euphoria”, with “synchronized” growth and “secular stagnation (possibly) morphing into secular expansion”?
* But caution is advised -- sharp divergence between geopolitics and markets, long term productivity concerns, etc. Need to be watchful of, among other things, monetary normalization/inflation and the Chinese deleveraging…
* While supportive, this environment, net/net, poses a challenge for Turkey…
* On domestic front, notwithstanding the impressive headlines and the “resilience” so far, Turkey’s growth model is running out of steam…
* Construction sector, credit, private consumption – and last year’s massive stimulus --have been the key drivers, but they seem hard to sustain...
* We managed to delay “adjustment”, but it is doubtful this can go on forever…
* Going forward, there are natural constraints (financial sector’s capacity) on applying more stimulus. So next fat rabbit(s) will have to come from “politics”…
* We have a “Turkish Trilemma” in our hands: How compatible are our politics, growth targets and external financing requirement? Currency/inflation must give in the “shortrun”, and growth in the “medium-run”?
Now read on...
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