Turkey to enter new boom-bust cycle, says economist who foresaw 2018 crash

Charles Robertson, an economist at Renaissance Capital, predicted a meltdown in Turkey in 2017, when the economy was growing faster than China’s. A year later, the lira crashed.

Now Robertson is predicting a similar scenario, saying President Recep Tayyip Erdoğan will lose patience with tight monetary policy and steamroll economic growth with cheap credit ahead of presidential elections in 2023.

Turkish assets rallied strongly after Erdoğan sacked the governor of the central bank in early November and replaced him with Naci Ağbal, a former finance minister. Ağbal hiked interest rates to 17 percent from 10.25 percent inside two months to defend the embattled lira, raising hope among investors for a sustained period of conventional monetary policy.

But Erdoğan is a known opponent of higher interest rates, claiming they are inflationary, and has sacked two central bank governors since mid-2019 by presidential decree.

“My current scenario is that we go back to another boom-and-bust cycle, with interest rate cuts in the second half of the year leading to strong credit growth in 2022, just ahead of the presidential elections in 2023, then we get another crash,” Robertson told Bloomberg in an interview published on Friday.

Unlike many economists, Robertson is not calling for another hike to central bank interest rates after inflation accelerated to 15.6 percent last month. He points to a likely slowdown in price increases towards the central bank’s year end goal of 9.4 percent.

“I think inflation is going to come down; it would be silly to hike rates now,” he said. “The best they can do is to show over years the model has changed.”

Murat Uysal, Ağbal’s predecessor, kept interest rates at below inflation for much of last year to help Erdoğan’s government engineer a borrowing boom. That policy led to a gaping current account deficit, a flight of foreign capital from financial markets and more record losses for the lira. The currency hit another all-time low of 8.58 per dollar at the start of November.

A rally in the lira has now petered out and reversed. It had gained to around 6.9 per dollar by mid-February but has weakened to trade at around 7.5 against the U.S. currency.

“I don’t have high trust that Erdoğan has learned his lesson. His comments just a week ago suggest that, yes, he is being responsible for now, but as soon as he gets the chance and certainly ahead of 2023, you would expect Turkey to go on the credit growth model again,” Robertson said.

“I’d love to be wrong, for the sake of the Turks and their savings and their relative standing in the world,” he said. “It could be a solid – perhaps the best – growth story in the European time zone for the next 10 years with the right policies.”