Turkey overcoming recession, says prominent economist

Turkish economy is now getting out of a severe recession bursting in the second half of 2018, according to eminent economist Nouriel Roubini.

"There is an improvement in growth, which is expected to be to 2-3% next year, lower than the potential," Roubini told Anadolu Agency in an exclusive interview on Friday.

Turkey saw a larger current account deficit in the second half of 2018, Roubini said, but it is shrinking as the devaluation of the currency and exports are more competitive.

He, however, said that that growth is partially driven by a policy stimulus that is probably not sustainable.

“I think fiscal policies is too loose [....] and using state banks and other credit institutions as a way of boosting domestic demand, it's very risky,” he warned.

Roubini … the interest rates were dropped too much and fast compared to the gradual fall in the inflation rates in Turkey.

This may cause shocks on Turkish lira and the process of structural reforms that should be boosting potential growth, according to the economist.

- Risk of global recession reduced

Commenting on central banks globally, he said the banks started to ease their monetary policies again since last year.

“Because there were a number of global territories that led to a sharp economic slowdown and concerns about even a global recession, the risk of an escalation of trade, currency, technology and cold war between the U.S. and China,” he explained.

The risk of hard Brexit the between the U.K. and the EU, as well as geopolitical risks in the Middle East could spike on process, Roubini added.

“So given these, global [developments] ease that monetary policy, and the good news that easing has allowed to easing a financial condition and so reduce the risk of a global recession,” he highlighted.

He said some of those global risks have been reduced with the “phase one” of a long-sought trade deal between the U.S. and China.

“And for now, there is not an escalation of the tension with the U.S. and Iran that could spike oil prices across the world. So that's the good news,” he added.

Roubini, on the other hand, said fundamental problem to keep growth at mediocre level --around 3% for the global economy -- is unchanged.

“Markets are becoming more optimistic about the future expansion and deflation. But the data from China, Europe, Japan and emerging markets are not consistent with this renewed optimism about financial markets' improvement.

“Things may or may not be worsening compared to a few months ago. I don't see a significant acceleration of global growth in the next four months,” he asserted.

- Central banks reaching their limits

When asked about whether global fiscal policies will be more effective in 2020, Roubini said many central banks are reaching the limits of what they can do.

“They [central banks] say we cannot be the only game in the town and are now saying if there is weakness in growth and demand, fiscal authority which will take the button off should stimulate growth.”

According to Roubini, as many countries in the world have large fiscal deficits and public debts, they do not have a lot of fiscal space.

“[...] fiscal policy is going to become only modestly expansionary in the global economy in the next 12 months, and therefore, if shocks occur, probably central banks are going to be forced to do more, even if they're reaching the limits of how much they can go,” he concluded.