The pandemic crashed the EU economy during 2020. The EU economy is expected to shrink by 7.4% in 2020. Although there were signs of promising recovery more quickly than expected during summer 2020, the authorities loosened the lockdowns as the rate of infections dropped. However, as the infection rate reached and even surpassed the previous levels, many EU leader re-imposed anti-pandemic measures. Although the vaccination is at hand, due to production problem the vaccination pace is very low in EU. That has interrupted the economic rebound. The EU economist suggest that the economy is not expected to go back to its pre-pandemic level before 2023. Even the slow vaccination pace might push EU towards to second economic slump.
Around 600 000 Germans who make half the workforce depending on face-to-face contact are suffering while they depend on government-subsidized furloughs and effectively unemployed. Despite the bad news, Germany succeeds in meager growth in last quarter whereas Italy and France declined. Economist assume that EU will succeed in ramping up vaccination by spring and restrictions will be gradually lifted.
The US economic outlook remains one of the muddled optimism with economy growing. Biden administration proposed a new stimulus package and it has been accepted in the Congress. The job market is growing steadily despite the fact that man jobs losses may be permanent. Households are behind in debt payments and rent by 200$ billion. Inflation is expected to move higher since agricultural, industrial commodity and energy prices are rising as result of strong demand from China. As a result, it is expected that interest rates will start rising even FED will its best to repress interest rate. Long-term growth will be slowed since income-support program will eventually end. This would increase the bankruptcy.
The annual inflation rising slightly to around 15% rate as the price of energy and miscellaneous good rose. President Erdogan continued to blame high interest rate for inflation which is not shared by international investors as well as economist. According to Fitch, the net reserves minus foreign exchange swaps fell $70 billion in 2020. Turkey has around $137 billion liabilities where as $48.5 billion in gross foreign exchange. That brings net reserves into negative territory. Other than economic pressure, S400 missile system and eastern Mediterranean conflict put political pressure on Turkey. Thus, ends up international investors being cautious investing in Turkey.
All these developments, either in the past or in future, has affected and will affect Turkish economy. Central Bank of Turkey seems to commit a tighter monetary policy for the coming years to battle inflation. Central Bank of Turkey wants to hold tight monetary policy until 2023 which is also the Presidential election in Turkey. Moreover, Turkey wants to re-establish diplomatic relations with Israel following the March election in Jerusalem. And the only way to do is to attract the investors either through the Jewish investors influence on US Congress and by reinforcing the Central Banks’ reputations as independent institutions although the Central Bank has limited tools to encourage growth. This all emphasizes the intention that President Erdogan starts strengthening the economy in order to gain the confidence of constituents prior to 2023 presidential elections.
Will this be enough? Apparently, President Erdogan is aware of the risks and start taking measures. This already emphasize his trust.
