DW:Turkish economy in free fall

About a month before elections, Turkish President Recep Tayyip Erdogan is under great pressure - the main reason being the economic situation in his country, the article highlights.

Higher unemployment

Although Turkey had a growth rate last year of 7.4%, many economists doubt that these figures reflect the true state of the economy. Even if the official figures are reliable, the problems are bizarre.

Unemployment is high - especially among young people. "An important part of the development is based on in-house consumption," said Erdal Yaltsin, professor of International Economic Relations at Konwaniya Higher School (HTWG).

The professor still talks about major state-owned construction projects, as well as business and household spending on loans.

At the same time, the Turkish lira is in a free fall - a major problem for a country that imports more than it exports. The rate of inflation is currently at 11% - more than twice as high as the target set by the Central Bank of Turkey.

Investor confidence is lost

The Turkish Central Bank should in this case raise interest rates in order to contain the fall of the lira. "Turkey needs external funds to maintain consumption-based growth," explains Erdal Yaltsin and underlines that "investor confidence is increasingly lost. It is a time bomb ".

However, Turkish President Erdogan is pushing the Central Bank to cut interest rates further. High interest rates are "the source of every evil," the Turkish president commented last Friday.

This week, he went one step further, declaring to Bloomberg television network that he intends to tighten the Central Bank if he wins the elections.

Pressures on lira

In this case, the Turkish president is setting a crucial issue for indebted businesses and households, who of course oppose an increase in interest rates. However, in the face of money markets it sends disastrous messages.

The value of the lira is falling even further. This puts the main business groups of the country at risk, given that in many cases they have loans in foreign currencies. The fall of the lirad makes these loans even more expensive, bringing many businesses close to inability to pay.

Risk of mass capita lflight

Turkish bond yields have risen to record levels. Which means that investors are no longer willing to lend to Turkey under the preferential terms of the past. The state, businesses and citizens do not have much room for action. Especially in a time that is so dependent on affordable loans, they are threatened with a capital drought.

The Turkish president is reacting by launching threats against "interest lobbying" and "Turkish enemies under the mantle of rating agencies". Such frontal attacks by Tayyip Erdogan without the fear of collateral losses are not unusual.

However, "this time it can caused a real damage," says economist Erdhal Yaltsin. "There will be bankruptcies in businesses and households because the pursuit of a debt-based policy can not work on a lasting basis," he said.