December, as we head into 2015, has been like a nightmare in terms of future expectations and for markets, as was December last year
In addition to political tension at home, Turkey has had to face increasing geopolitical risks abroad; coupled with sanctions from the US and the EU against Russia and the recent plunge of oil prices by about 45 percent – where they have remained for the past six months –, which has led to a reshuffling of the cards in the global economy. These developments have seriously upset balances in world markets. In Turkey, the dollar reached TL 2.41, a historic high, while the Euro returned to the TL 3 level. Which direction these developments – termed as “the Russian flu” by HSBC Turkey Treasury Group Director Fatih Keresteci — will be taking the global economy, is a major topic for discussion in itself, but currently, they are seriously impacting the global economy, particularly the developing markets. The ruble has registered significant losses against the dollar (more than 10 percent on a daily basis and about 80 percent throughout the year) recently, and the resulting volatility is now triggering major losses of value in the currencies of emerging economies.
Although reactive measures announced by the Russian government in late December and an announcement from the Fed in the US that “it will be patient” on the timing of an interest rate increase seem to have alleviated the fire of the markets in emerging economies for now, the year 2015 looks like it is not going to be very smooth for Turkey or other emerging countries. At a time when there is too much uncertainty in the oil market as well as in global politics, Massachusetts Institute of Technology (MİT) Professor of Economy Daron Acemoğlu, speaking at a conference in İstanbul in late December, said he wasn’t ruling out the prospects of a new crisis in Europe. He said currently there are many risks for the world economy, saying that the current situation in Russia and the Middle East is the source of major uncertainty. He also noted that the possibility of a crisis in Europe certainly does not bode well for Turkey. In December, the dollar rose to TL 2.41, and then fell down to TL 2.32. However, the volatility by itself has created a serious risk.
“Turkey should strengthen immunity”
Although Turkey is an importer of oil and natural gas; and its general macroeconomic outlook appears to be in better shape than that of most emerging economies, the lira has registered the highest amount of loss in the recent period, with the exception of the ruble.
HSBC’s Fatih Keresteci, in a recent report on the current state-of-affairs, wrote that the “Russian flu” is contagious and it affects those with “weak immunity systems most.” Keresteci noted that a weak immunity can be the result of both short and long-term – or temporary or permanent — problems. Keresteci noted that Turkey’s EU accession prospects have been viewed as a positive asset in the eyes of foreign investors. Among the long term problems that plague the Turkish economy is the continuing need for structural reform.
He also noted that a reform package announced in November, which followed by another package detailing the macro perspectives of that package in December, bears great importance in this regard.
Keresteci and other economists say that Turkey has no other option but implement the content of the package without wasting any time in order to strengthen its immune system.
Experts note that 2015 is fraught with many global and geopolitical risks. Given that it will be an election year for Turkey, which will result in higher political tension, it will likely be a challenging year for all of us.
