Erdoğan may fail to hit economic growth goal with credit boost - FT

Turkish President Recep Tayyip Erdoğan may fail to hit a target of 5 percent economic growth for next year, the Financial Times reported, citing analysts and economists.

Erdoğan is seeking to revive economic activity in the country by boosting access to credit and pressuring the central bank to lower interest rates.

While consumer borrowing is on an uptick, Turkish companies are already saddled with tens of billions of dollars of debts and banks are more reluctant to lend. That makes the growth target more difficult to achieve, the FT said.

“What makes the current post-recession cycle more complicated is the fact that the corporate sector’s debt has doubled to 70 percent since 2008,” said Uğraş Ulku, an economist at the International Institute of Finance in Washington D.C., according to the FT.

Companies’ margins have been squeezed by a currency crisis last year that made foreign debt more expensive to service. That has hurt revenues and curbed new investment.

Banks are also more cautious about lending because non-performing loans (NPLs) have increased and requests by companies to restructure their loans have grown.

“They’ll need to work through the large stock of NPLs, so they are a bit more careful in lending to companies,” said Magdalena Polan, an economist at Legal and General Investment Management.

“I think the Turkish economy will post stronger growth in 2020,” said Polan. “But it will be very challenging to push it to the 5 percent level. I would think the consensus forecast of 2.1 percent is generally realistic.”

But Nora Neuteboom, an economist at ABN Amro, says Erdoğan’s goal is potentially a realistic one.

“It is feasible if he really focuses on cheap credit, government consumption and really lowering rates,” she said.

Still, Neuteboom said the cost of reviving economic growth to such an extent would be more economic vulnerability; a widening current account deficit, high inflation and volatility for the lira.

“Whether the short-term gains outweigh the long-term economic challenges – that is the question,” she said.