Moody’s says Turkey’s economy likely entered recession

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Global credit agency Moody’s has said Turkey’s economy began decelerating rapidly in the third quarter, in the wake of a currency crisis, causing a severe contraction in domestic private sector demand.

In its report titled “Global Macro Outlook 2019-20,” Moody’s said that double-digit inflation, a steep increase in borrowing costs and curtailed bank lending are likely to weigh on household purchasing power and private consumption as well as investment, causing a severe contraction in domestic private sector demand.

“We expect the economy to contract every quarter through mid-2019, and forecast just 1.5% growth in 2018 followed by a 2.0% contraction in 2019 and a 3% recovery in 2020. Persistent high inflation and the expected slowdown in lending will curtail growth,” said the agency.

Besides being ineffective on the inflation front, the recently announced tax cuts on most will be too short-lived to provide more than a temporary boost to consumption, particularly amid very high interest rates that will curtail borrowing for expensive articles such as cars and appliances.

Moody’s said, “The inflation rate has risen steadily from around 10 percent at the beginning of the year to 25.3 percent in October.

“We expect inflation will head still higher in the next several months and will remain at double-digit rates through 2020, mainly because of unanchored inflation expectations spurred additionally by exchange rate and oil price pressures.”

Turkey has been experiencing a currency crisis as the lira has lost 30 percent of its value against the US dollar since the beginning of the year, resulting in a surge in costs in almost all areas.

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