Türkiye: Balance-of-Payments Tension Rises; Stopgap Efforts to Stabilise Lira Increase Risks

Türkiye’s economy will grow 5.8% in 2022 as households stock up in anticipation of even higher prices. Scope Ratings projects growth to slow to 3.5% in 2023, with risk of even sharper slowdown unless government embarks on sustainable economic policy making.

Türkiye’s unconventional policy mix has raised risk to external and public finances, while failing to restore currency stability or materially increase foreign-exchange buffers.

Türkiye faces foreign debt repayments and financing of its current account deficit of around USD 225bn or 30% of GDP over the next 12 months, risking further deterioration of balance of payments, higher borrowing costs and depreciation of the Turkish lira against dollar and euro.

Balance-of-payments dangers are common to emerging-market economies with external imbalances such as Türkiye, but especially this year given spill-over effects from Russia’s war in Ukraine within a context of elevated and highly volatile commodity prices and rising rates globally.

Figure 1. Current account balance by component (USD bn)

Source: Central Bank of the Republic of Türkiye, Scope Ratings

Türkiye’s current account deficit will widen to around 7% of GDP this year from 1.7% in 2021 due to the rise in energy prices as the economy is one of the largest net energy importers in central and eastern Europe. Net energy imports reached USD 42.2bn or 5.2% of GDP in 2021 and could exceed 9% of GDP this year, more than offsetting growth in goods exports and a rebound of tourism receipts (Figure 1).

Debt roll-over, Servicing Challenge Grows as Federal Reserve, ECB Tighten Rates

To be sure, financing challenges of Türkiye are concentrated in the private sector. Of USD 225bn in gross external financing requirements, USD 182.5bn represent maturing external debt, which includes bank deposits, trade credit and other short-run private-sector debt, with only USD 3.6bn of this owed by the general government as of June 2022 plus another USD 30bn by state-owned banks.

However, central bank reserves will come under further pressure should there be another sustained drop in the rollover ratio of private external debt (Figure 2) as occurred during pandemic crisis peaks of 2020. In addition, non-resident capital outflows resumed during the first half of this year. This added to pressure on reserves although the remaining amount of non-resident capital declined to a modest USD 1.5bn in domestic government debt and USD 15.1bn in equities by end-Q2 2022.

Figure 2. External debt rollover ratios (%, six-month moving average)

Source: Central Bank of the Republic of Türkiye, Scope Ratings

Tighter monetary policy pursued by major central banks has as well raised borrowing costs for emerging markets such as Türkiye. Türkiye issued a USD 2bn Eurobond, due in 2027, at yield of 8.625% in March, compared with 5.70% for a seven-year issue in September 2021.

Yet, at home, the Turkish central bank’s loose monetary policy, aligned with the unorthodox economic views of President Recep Tayyip Erdoğan, has plunged domestic real rates deeper into negative territory as inflation gallops ahead. The bank lowered its benchmark one-week repo rate by 100 basis points to 13% on 19 August despite annual inflation running at a two-decade high of 80.2% YoY in August.

Stopgap Efforts to Stabilise Currency Likely to Prove Self-Defeating

It is no surprise that the Turkish lira remains under pressure, with risk of further depletion of foreign-currency reserves. The lira has lost nearly 30% of its value against dollar this year.

The government has sought to stabilise the currency and protect FX reserves with policies that artificially ease selling pressure, from protecting lira deposits against FX loss to requiring exporters to exchange 40% of forex revenue to lira.

Ankara’s approach serves only to buy time at significant cost. Foreign-currency reserves of the central bank have recently increased (Figure 3), up to USD 63.4bn in late August (excluding gold reserves of USD 40.8bn), likely helped by a large inflow from Russia for construction of a nuclear power plant. However, when swap liabilities are deducted, net reserves are at a near record low of negative USD 60.1bn in July 2022 compared with positive USD 18.5bn as of end-2019.

Figure 3. Turkish reserves and exchange rate

Source: Central Bank of the Republic of Türkiye, Scope Ratings

Domestic political decisions around inflation undermine capacity of the economy to fund sizeable external imbalances. The lira savings scheme is weakening one of Türkiye’s core credit strengths – the health of its sovereign balance sheet – at a projected cost of circa 2% of GDP this year.

We see limited chance of material change of policy before the elections due next year. The run-up and follow-up to the elections could be bumpy. In the polls, President Erdoğan is behind potential presidential candidates of the main opposition Republican People’s Party. Possible political unrest, in addition to rising economic imbalances, represents a significant vulnerability for Scope Ratings’ B-/Negative Outlook foreign-currency credit ratings assigned to Türkiye.

For a look at all of today’s economic events, check out our economic calendar.

Levon Kameryan is Associate Director in Sovereign and Public Sector ratings at Scope Ratings GmbH. Matthew Curtin, deputy head of communications at Scope Ratings, contributed to writing this article.

2022 Central & Eastern Europe Outlook: Sound Growth, but Deficits, Governance, Geopolitical Risks Are Concerns

Explainer video: Scope Ratings introduces its 2022 Global Sovereign Outlook

Download Scope’s 2022 CEE Sovereign Outlook (report)

We expect broad-based, if uneven, economic expansion in the 11 EU member countries of the region (CEE-11) to continue, marking aggregate calendar-year growth of 4.6% in 2022 – albeit somewhat slower than a 5.6% expansion this year. This includes: 4.1% in Poland next year (after 5.5% in 2021), 5.4% in Hungary (after 7.5%), 5% in Romania (after 7.2%), 4.8% in Croatia (after 8.8%). Slovakia (5.3% in 2022, after 3.7% in 2021), Bulgaria (4.8% in 2022, after 3% this year) and the Czech Republic (4.7% next year, after 3% in 2021) are seen bucking normalisation trends, with growth accelerating in 2022.

Outside the EU, Russia similarly grows a more moderate but nevertheless above-potential 2.7% next year, after 4.5% this year. However, Turkey is seen slowing sharply to 2.3% in 2022, after 10.8% in 2021, while Georgia normalises to 5.5% economic growth next year, after 9.8% this year.

A constraint remains elevated budget deficits of the region

One constraint remains still-elevated budget deficits preventing any meaningful reduction of government debt and exposing economies to further tightening in global financial conditions.

Budget deficits will have remained elevated around 5.5% of GDP on aggregate in the CEE-11 in 2021, after 7.1% of GDP in 2020, as governments have prolonged discretionary spending in support of households and business. As a result, public debt ratios peak in 2021 – around levels not seen since peaks of the global financial crisis – before stabilising and gradually declining from 2022. Altogether, an aggregate budget deficit of the CEE-11 shrinks to 3.8% of GDP in 2022.

Russia ought to get near a balanced budget over 2022-23. In Turkey, increasingly frequent economic crises have brought repeated requirement for the counter-cyclical use of budgetary resources. Scope sees Turkish general government deficits of 5.4% of GDP in 2022, further increasing to 6.4% in a 2023 election year, after a more-modest-than-anticipated 3.2% this year.

Quality of economic policies increasingly important given changing political landscape

Inflation is running above target across CEE markets, limiting the room central banks have to aid recovery through continued accommodation in monetary policies.

Under this context, the quality of economic policies is increasingly important for growth and sovereign credit quality in the region given a changing political landscape, prolonged fiscal adjustments, rising labour shortages, and evolving environmental and technological challenges.

Access of the CEE-11 to substantive EU investment funding provides an historic opportunity to raise longer-run potential rates of economic growth via expenditure on digitisation, infrastructure and climate change. Improved economic resilience and curtailed external-sector risk contribute to improving outlooks as concerns the Baltic states, Bulgaria and Croatia, the latter two benefitting from accession to the Exchange Rate Mechanism II and Banking Union of the European Union.

Even so, higher-than-usual policy uncertainty persists across some CEE-11 economies, notably in Poland and Hungary, where added tensions with the EU over the rule of law could result in further delay of EU financing and adversely impact growth and public finance outlooks. The CEE economies most integrated into global supply chains, such as Slovakia and the Czech Republic, whose economies are reliant on the shortage-hit automotive sector, face nearer-run slowdown in growth momentum.

Geopolitical tensions and sanctions risk impact outlook for Russia, while Turkey goes from crisis to crisis

Russia is benefitting from an improved outlook concerning commodity prices. Effective fiscal and monetary management has abetted stabilisation of its economy, while lowering exchange-rate volatility. These developments supported Scope’s earlier upgrade of Russia’s credit ratings to BBB+/Stable.

However, geopolitical tensions are running high. Latest US efforts to defuse crisis in Ukraine might prove crucial, but Russia faces risk that further international sanctions are adopted, weighing on investment and growth outlooks. The significance for the credit ratings of Russia from sanctions risk hinges at this stage upon whether Russia’s approach on Ukraine favours maintaining a status quo, attenuating outstanding conflicts, or, instead, favours escalating a geopolitical crisis with risk of more punitive sanction repercussions from western counterparties.

In Turkey, looser financial conditions have anchored very high growth of 2021 at expense of the intensification of macroeconomic imbalances, manifested in the depreciating lira and inflation of above 20%. Turkey’s policy framework, as President Recep Tayyip Erdoğan has consolidated personal control over government and the central bank, is inconsistent with the economy’s long-run sustainability.

For a look at all of today’s economic events, check out our economic calendar.

Levon Kameryan is Senior Analyst in Sovereign and Public Sector ratings at Scope Ratings GmbH. Giacomo Barisone, Managing Director at Scope Ratings, co-wrote this article.

Turkey Nears Tipping Point: Capital Controls, Use of Reserves Unlikely to Prevent Lira Depreciation

The government in Ankara has few options available so long as President Recep Tayyip Erdoğan remains committed to lowering borrowing rates to accelerate economic growth and raise exports even under conditions of inflation running above 20% – eroding ordinary citizens’ disposable income.

Either the currency crisis gets bad enough for President Erdoğan’s advisors to say “enough is enough”, at which stage the central bank changes personnel and belatedly hikes rates – even if temporarily – to ease current selling pressure on lira and check inflation.

Or, as an alternative, the central bank resorts to “de-globalising” the currency – reintroducing capital controls, limiting access to foreign currency within the economy, seeking foreign currency from domestic banks and foreign allies, and going through reserves in defence of the currency – in line with what occurred between 2018 and 2020 when Erdoğan’s son-in-law Berat Albayrak ran economic policy.

The government’s exchange-rate pain threshold appears higher than in the past

Any decision to cut rates again, even as global central banks are generally tightening, at the monetary policy committee of 16 December could place even further pressure on lira, already having lost around half its value since February.

Inflation rose to 21.3% YoY in November, sending real policy rates to -5.2%, among the lowest in emerging markets.

Stemming this lira slump is critical but the government’s exchange-rate pain threshold appears higher than it was in 2018 or late 2020 when the central bank last hiked rates sharply to circuit break a currency rout.

Erdoğan has significantly consolidated his influence over economic decision-making by this stage, including monetary policy. The president appears much more “dug in” during this crisis with loyalists running the central bank and treasury and repeated mantra of how falling interest rates support growth and employment. In addition, the political stakes are much higher ahead of centenary elections due by 2023. Erdoğan and his Justice and Development Party are trailing in polling, so any public admission of failure on the economy such as vis-à-vis a rates reversal is likely to be seen by Erdoğan as damaging to credibility.

Observing steps of use of forex reserves and capital controls in slowing lira losses

We are already observing the government pursuing a “de-globalisation” strategy in using forex reserves to intervene in exchange-rate markets – after having previously committed not to do so – and adopting specific forms of capital controls to discourage depositing in foreign currency and selling of lira, to allow for lower rates while slowing currency losses. The catch is that defending lira via such a strategy is unsustainable long run.

The policy is expensive, and only buys time. Turkey racked up foreign-exchange reserve losses of over USD 100bn over 2018-20. Net reserves ex-swaps, standing at negative USD 42.3bn as of October, represent a lasting testament to consequences of this policy framework, which would be risky to attempt again with the domestic sector losing confidence in value of lira, precipitating further capital outflows.

Risk of political crisis with elections looming, on top of economic and lira crises

Instead of helping Erdoğan’s political cause, a lower interest rate policy to engineer higher economic growth appears to be aggravating his likelihood of re-election. The weak currency is instead exacerbating high inflation and loss of consumer purchasing power, which are central causes of popular discontent. Moreover, rate cuts are resulting in much higher long-end rates, tightening monetary conditions and exacerbating economic instability – hitting the poorest the hardest.

Should Erdoğan not alter course and electoral defeat were to appear inevitable, political tensions are likely to grow over 2022 and 2023 if the president turns to less democratic routes to hold to power. Risk of a political crisis, in addition to economic and lira crises, represents a vulnerability with bearing on B/Negative Outlook foreign-currency credit ratings we assign to Turkey.

For a look at all of today’s economic events, check out our economic calendar.

Dennis Shen is a Director in Sovereign and Public Sector ratings at Scope Ratings GmbH.

 

2022 Global Economic Outlook: Covid-19, Structural Inflation, Monetary Tightening Challenge Global Outlook

Explainer video: Scope Ratings introduces its 2022 Global Sovereign Outlook

Download Scope’s 2022 Sovereign Outlook (report).

Entering 2022, new variants of Covid-19, elevated inflation, and withdrawal of fiscal and monetary support present risk for the robustness of recovery. GDP is seen, nevertheless, continuing to grow above trend over 2022 of 3.5% in the US, 4.4% in the euro area, 3.6% in Japan and 4.6% for the UK, even if, in most cases, normalising to a degree from elevated early-recovery growth of 2021. China is seen growing nearer trend of 5%.

Amid an uneven recovery, we see momentary slowdown over Q4 2021 and Q1 2022 across many economies, if not in some cases temporary output contraction, as countries of Europe reintroduce generally lighter restrictions on basis of renewed rise in Covid-19 cases, including those associated with a new Omicron variant. But we see economic rebound regathering traction by the spring of 2022.

As expected, full economic normalisation has remained vulnerable to renewed introduction of restrictions as transmissible virus variants challenge public-health systems, though we see severity of virus risk for economic recovery continuing to moderate with time as governments adopt more targeted responses, virus becomes more transmissible but less lethal, and businesses and people adapt ways of doing business. Nevertheless, risk to the 2022 outlook appears skewed on the downside.

More persistent inflation, even as it begins to moderate, supports increasing monetary policy divergence

Inflationary pressure is likely to remain more persistent than central bank projections, running above pre-crisis averages even after price changes begin to moderate by next year. This is likely to compel a continued divergence of monetary policy within the globe’s core economies, with associated risk of crystallisation of latent debt and financial-bubble risk as central banks pull back.

This is especially true as regards the UK and the US, where inflation might continue testing 2% mandates, although much less the case for Japan of course, with the euro area somewhere in between with inflation potentially remaining under 2% over the long run.

By end-2022, policy rates of leading central banks are expected to similarly diverge: remaining on hold with respect to the ECB and the Bank of Japan but with rate hikes next year from the Bank of England and Federal Reserve. The ECB is seen halting the Pandemic Emergency Purchase Programme (PEPP) next year but adapting PEPP and/or other asset-purchases facilities to retain room for manoeuvre and smoothen transition in markets.

Higher inflation holds both positive and negative implications for sovereign credit ratings

Higher and more persistent inflation holds both positive and negative credit implications as far as sovereign ratings are concerned. Somewhat higher trend inflation supports higher nominal economic growth, helping reduce public debt ratios via seigniorage, and curtails historical deflation risk of the euro area and Japan. However, rising interest rates push up debt-servicing costs especially for governments carrying heavy debt loads and running budget deficits. Emerging economies, with weakening currencies and subject to capital outflows, are particularly at risk.

Substantive accommodation from central banks has cushioned sovereign credit ratings over this crisis, so any scenario of much more persistent inflation limiting room for monetary-policy manoeuvre is a risk affecting credit outlooks. Bounds in central bank capacity to impede market sell-off due to high inflation compromising monetary space may expose latent risk associated with debt accrued in past years.

Monetary innovation during this crisis has supported credit outlooks

As many central banks tighten monetary policy amid policy divergence, peer central banks that might otherwise prefer looser financial conditions may see themselves compelled to likewise remove some accommodation, otherwise risking currency depreciation. At the same time, with governments dealing with record levels of debt and central banks owning large segments of this debt, “fiscal dominance” may coerce moderation in speed of policy normalisation.

Monetary innovation over this crisis such as flexibility made available in ECB asset purchases supports resilience of sovereign borrowers longer run, assuming such innovations were available for re-deployment in future crises.

Emerging market vulnerabilities entering 2022, while ESG risks becoming increasingly substantive

Emerging market vulnerabilities are a theme entering 2022, amid G4 central bank tapering, geopolitical risk, and a slowdown of China’s economy. Debate heats up furthermore during 2022 around adaptation of fiscal frameworks for a post-crisis age, with potentially far-reaching implications as far as sovereign risk. Environmental, social and governance (ESG) risks are becoming increasingly significant – presenting opportunities and challenges for ratings.

Sovereign borrowers with a Stable Outlook make up presently over 90% of Scope Ratings’ publicly rated sovereign issuers, indicating comparatively lesser likelihood of ratings changes next year as compared with during 2021, although economic risks could present upside and downside ratings risk. Only one country is currently on Negative Outlook: Turkey (rated a sub-investment-grade B).

For a look at all of today’s economic events, check out our economic calendar.

Giacomo Barisone is Managing Director of Sovereign and Public Sector ratings at Scope Ratings GmbH.

 

Turkey’s Erdogan Overhauls Monetary Policy Committee, Lira Hits Record Low

It said those dismissed were deputy governors Semih Tumen and Ugur Namik Kucuk, along with another MPC member, Abdullah Yavas.

Erdogan appointed Taha Cakmak as a deputy central bank governor and Yusuf Tuna as an MPC member, it said.

Analysts viewed the move as fresh evidence of political interference by Erdogan, a self-described enemy of interest rates who frequently calls for rate cuts.

The lira weakened to a record low of 9.1900 against the dollar after the announcement, a loss of 1% on the day. It has weakened about 19% so far this year, driven by concerns about monetary policy.

It later pared some of the day’s losses, to stand at 9.1325 at 05:33 GMT.

Last month, the central bank unexpectedly cut its key rate to 18% from 19% despite annual inflation of nearly 20%, sparking a new selloff in the lira, which was also hit by the dollar strengthening against other currencies.

The MPC overhaul came after the presidency said on Wednesday evening that Erdogan had met Central Bank Governor Sahap Kavcioglu, publishing a photo of Erdogan standing next to him.

OPPOSITION

A source told Reuters that both Yavas and Kucuk had lately opposed some decisions taken by the MPC, while Kucuk had also been against reserve sales to support the lira in previous years.

“Kucuk had a sentence at the MPC that is still remembered at the bank: ‘The lira’s stability, reputation and the price stability that comes with these are prerequisites for economic growth and development based on productivity. Growth provided by other means will not be permanent,'” the source said.

“‘If you keep the interest rate lower than where it needs to be today, the level you have to raise the interest rate to tomorrow will be higher than the level it needs to be today,'” the person quoted Kucuk as saying.

“I think it is a loss for the (central bank),” the source said of the removal of the members.

Kavcioglu said this week that the rate cut was not a surprise and had little to do with the subsequent lira sell-off.

The bank’s next policy-setting meeting is on Oct. 21.

Last week, three sources familiar with the matter said Erdogan was losing confidence in Kavcioglu, less than seven months after he sacked Kavcioglu’s predecessor, and that the two had communicated little in recent weeks.

Erdogan has made a series of changes to the MPC in recent years. He fired three bank governors in the last 2-1/2 years over policy disagreements, hitting the lira and badly harming the credibility and predictability of monetary policy.

“Firing central bank officials in the middle of the night without a very good explanation is not how you build central bank credibility or bolster market confidence,” one foreign investor said on Thursday.

Headline inflation hit a 2-1/2 year high of 19.58% in September, while a core measure – which Kavcioglu has been stressing over the last month – was 16.98%.

Erdogan appointed Kavcioglu in March after ousting Naci Agbal, a policy hawk who had hiked rates to 19%. Erdogan ramped up pressure for easing in June when he said publicly that he spoke to Kavcioglu about the need for a rate cut after August.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Daren Butler, Additional reporting by Ezgi Erkoyun, Nevzat Devranoglu, Jonathan Spicer and Ali Kucukgocmen; Editing by Dominic Evans and Stephen Coates)

TURKEY, LIRA, ERDOGAN: Swamps of Greatness

What’s happening

Azerbaijan and Armenia are at war – again. Who started it – doesn’t matter anymore. What matters is who wants what and what position every side takes in this conflict. And there is definitely more than just Armenia and Azerbaijan – about these, you wouldn’t probably hear in another 10 years, if not the conflict. As you understand – there is Turkey.

At least because the Turkish President clearly expressed his view on the situation. There is also Russia. And Europe. And even the US – in fact, half of the world may be involved in this small regional conflict of the two nations which don’t have any sound weight on a global scale.

The core

Azerbaijan is a Turkic-speaking nation, Muslims. Within their territory, there is a region of Karabakh where Armenians live – a different language, background, and Christians. Armenians of Karabakh say “we have nothing to do with Azerbaijan, we want to be separate”. Azerbaijan says “that’s our land – if you want to stay on it, it will remain ours”.

So for Azerbaijan, Armenians of Karabakh are separatists and terrorists. For the Armenians of Karabakh, Azerbaijan is an oppressor state trying to expel you from your homeland, at the very least. A clear stalemate – or a balance, if you prefer.

The nutshell

The state of Armenia which borders Azerbaijan obviously supports the Armenians of Karabakh inside of Azerbaijan. In the meantime, Turkey clearly supports Azerbaijan as these are the two nations of similar blood, culture, and language.

Now, if it was only between Armenia, Azerbaijan, and Turkey – Armenia with Karabakh obviously have no chance: neither demographically, nor militarily, economically, or strategically. But there is a Russian military base in Armenia: Armenia is, or has been until now, a strategic vanguard post of Russian power projection into the Middle East since the conquest of Caucasus by the Russian Empire in the XIX century.

That means, although the time of old empires is gone, the two nations – namely, Russia and Turkey – still clash in this region. Now, Turkey is NATO, but it has been behaving not exactly pro-NATO lately: especially, the US has not been very happy with Turkey. In the meantime, Russia, even despite having a military base in Armenia, prefers to stay out of the battle as it sells arms to and has economic ties with both Armenia and Azerbaijan.

That means

The Turkish President is pushing Turkey into yet another unsolvable conflict. As patriotic as it may appear to some Turks, in supporting their brother nation against Armenians, economically, it is yet another burden on the Turkish lira: war needs money, money needs to be loaned – or, printed.

Geostrategically, it alienates Turkey even more – at least, from Europe. Because Europe, as much as it would like to see Russia lose some weight, doesn’t want to see Turkey rise as a regional power to become undisputed in the Middle East. And the latter – becoming undisputed in the Middle East – is exactly the aspiration of the Turkish President.

Erdogan wants to make Turkey great again (sounds familiar, right?), like how it was in the time of the great Ottoman sultans who projected their power as far as until Vienna, in their best times. Now, as the wealthier classes disapprove of Erdogan’s autocratic and religion-imposing grip, the poorer classes mostly support him on patriotic feelings. These feelings need to feed on something – and what may be better than another patriotic war to make the poor people yell “hooray” to their president?

Up means less

The 100-MA and 200-MA have been almost identically looking upwards on the weekly chart. That means the TRY has been losing value against the USD across the years, with minor deviations. In addition to that, the trajectory seems to be accelerating its upward slope vertically – the Turkish lira is increasing the pace of depreciation.

The historical level of 8.00 appears to be just around the corner – maybe, by New Year, we will see it crossed. Technically, going that far away from the Moving Averages would be a ground to expect a nearing correction downwards. But if and when it happens, it will be a temporary technical downturn compared to the strategic upward pressure Erdogan’s politics are exerting on USD/JPY.

What does it mean for Turkey? Poverty. Same as for any other developing nation that gets driven into yet another line of old-victories-based patriotism while the developed world gets more developed and the USD keeps gaining against the TRY. Turkey is becoming a poor self-locked nation. Its people will see less wealth, less financial capacity, less financial freedom (as well as any other freedom) in commemoration of the glorious days of the Ottoman sultans.

What does it mean for you? A guarantee that your position game with USD/TRY will see no glitch: TRY will keep losing – Erdogan guarantees that. Even if he miraculously realizes how deep he pushed Turkey into the swamps of surrounding conflicts, the long-term damage to the Turkish economy is already inflicted and will be increasing.

And that’s in addition to the virus damage that decimated international tourism, and other long-term consequences related to Turkey’s international prestige. Ties with Europe and loosening – the chart of EUR/TRY looks almost the same. So it will be safe to extrapolate the trajectory as far as you need – the Turkish lira’s chance to rise is now as low as zero.

P. S.

It’s always interesting to watch the change of paradigms. Erdogan is trying to project an image of a strong leader. He wants to be something separate from the line of his predecessors – including Mustafa Kemal Ataturk, whose photos, pictures, and images are almost in every home, shop, or office in Turkey. And that’s for a reason. Your people will call you “the father of Turks” (as this is what “Ataturk” stands for) when you accomplish something no less than making a nation: re-building the entire country from zero, collecting the nation on the ruins of the vast Ottoman Empire, fighting back the victorious enemy empires slicing your country, and finding a new way for a new state so that your people can carry on with their lives.

That new way was secularism: putting religion out of public conscience and state affairs in the name of progress and economic development. And that new direction worked. For almost a century, Turkey has been following the direction set by Ataturk to become a strong regional power that no state can deny. And very importantly, a state that other countries are willing to interact too. Now, Erdogan’s direction is fundamentally different from that of Mustafa Kemal. Erdogan is bringing back religion and gradually turning Turkey away from the outer world, particularly Europe and the US. What’s his direction then? Isolation.

What’s the leader image he wants to be affiliated with now? Mehmet Fatih, the great sultan who finally conquered Constantinople and converted the emblematic Byzantine church of Hagia Sophia into a mosque. Erdogan just did the same, probably hoping that Turkish people will think of him the same as what they think of Mehmet Fatih. And some do. But the difference is: these are not the times of empire expansion.

Erdogan is sourcing stronger social momentum from his people, but this momentum has no outer space to propel through, no outer lands to conquer, no room for expanding state frontiers. In other words, no extensive way of development, like it was in the Ottoman empire. Neither does he provide inner space for intensive development and inner improvements – in fact, he is doing all the opposite: limits freedoms, makes the social structures more rigid and tense.

So the picture is becoming like this: the internal pressure in Turkey increases, while there are no ways to channel that pressure, neither outside nor inside. Now, what happens when you keep increasing the pressure in a rigid metal structure? Implosion. Or explosion. Doesn’t matter: nothing good happens. Let’s hope that no such thing happens to Turkey. Otherwise, it will need another Ataturk to build it back from the ashes. This time – economical.

This post is written and submitted by FBS Markets for informational purposes only. In no way shall it be interpreted or construed to create any warranties of any kind, including an offer to buy or sell any currencies or other instruments. 

The views and ideas shared in this article are deemed reliable and based on the most up-to-date and trustworthy sources. However, the company does not take any responsibility for accuracy and completeness of the information, and the views expressed in the article may be subject to change without prior notice. 

September 3, Market Overview – EURTRY, EURUSD and Gold in Focus

EURTRY remains bullish as new closes are higher than the previous ones. One should wait for a structured confirmation of the triangle pattern or a breakout from the triangles upper edge. If the breakout is confirmed EURTRY will continue an uptrend towards 9.10 – 9.20.

EURTRY chart by TradingView

Gold remains bearish in short-term and bullish in long-term. Precious metal lost value this week as positive US economic data were announced. Correction might as well continue further towards $1915 and below that towards $1892.

Gold price on Overbit

EURUSD retraced on September 1 after setting up a new year-to-date high at 1.2010. Bears pushed the price down after the test of a dynamic resistance, rather weak Eurozone economic data and a stronger US data. Support levels to watch are 1.18100, which is a short-term dynamic support and 1.1750 which is a lower edge of an expanding diagonal.

EURUSD price on Overbit
For a look at all of today’s economic events, check out our economic calendar.