COMMENTARY: Capital Flight From Turkey Will Stunt Growth, Weaken Currency

Turkey is in the midst of a silent capital flight, with financial outflows mounting to $12 bn since the beginning of the year.  In June, CPI inflation soared to 12.65% annually, with little hope of a summer relief, as cheap and easy credit fuels a consumption boom not supported by real disposable incomes. Deeply negative deposit rates in TL and rising inflation are pushing savers towards FX assets; stocks and real estate. The pressure on the currency are only contained by constant FX sales of state banks at the order of the Central Bank.  In a nutshell, Turkey’s interest and exchange rates are drifting away from equilibrium. The Erdogan administration is unlikely to take steps to correct this disequilibrium. Turkey could either experience booming inflation and current account deficits by the end of the summer, or a ”sudden stop syndrome” which many ratings agencies fear.

Published By: Atilla Yeşilada

GlobalSource Partners’ Turkey Country Analyst Atilla Yesilada is the country’s leading political analyst and commentator. He is known throughout the finance and political science world for his thorough and outspoken coverage of Turkey’s political and financial developments. In addition to his extensive writing schedule, he is often called upon to provide his political expertise on major radio and television channels. Based in Istanbul, Atilla is co-founder of the information platform Istanbul Analytics and is one of GlobalSource’s local partners in Turkey. In addition to his consulting work and speaking engagements throughout the US, Europe and the Middle East, he writes regular columns for Turkey’s leading financial websites VATAN and www.paraanaliz.com and has contributed to the financial daily Referans and the liberal daily Radikal.