One of the world’s most important developing economies, “Europe’s BRIC” (according to David Cameron), and a rising political power not just in its neighborhood, but the world as well, might be heading for a fall. As the FT reports, Turkey could be in trouble:
Ankara’s current account deficit in absolute terms is the second biggest in the world. As only a small fraction is financed via foreign direct investments, the risk of financial shocks remains serious. With inflation closing in on 10 per cent, there is genuine cause to fear that the economy is overheating.If 2011 was the year of cruising at altitude, then 2012 may be the one which witnesses a hard landing. The links between Ankara and the eurozone mean that Turkish exports are bound to be affected by Europe’s woes. Domestic demand is also slowing. While the government expects the economy to grow at 4 per cent next year, independent estimates predict this figure will be considerably lower.
There’s more. Prime Minister Erdogan, Turkey’s most popular leader since Atatürk, is sick: he had stomach surgery in November. His doctors assure us he will recover quickly, and that he does not have cancer. But the news kicked off a discussion on who will take Erdogan’s place when he steps down, whenever that is. No matter who follows Erdogan, the new leader is unlikely to inherit Erdogan’s popularity.Normally these risks (which should not be overstated: Turkey is no Greece) would be of more interest to the Turks and a handful of investors than to anyone else. But Turkey’s new role in the Middle East is highly dependent on both prosperity and stability at home. A serious recession in Turkey or a change in leadership would have much wider regional implications than a few years ago; stay tuned.