Until early 2017, Turkey appeared to be headed toward an economic crisis, the first omens of which came in the second half of 2016 and intensified toward the end of the year. The economy had begun to contract and was technically entering a crisis, but the governing Justice and Development Party (AKP) succeeded in “managing” things, and Turkey — at least for now — stands away from a full-blown crisis. Yet steering the ship away from the rocks came at a hefty price, which is equally important. The Turkish economy today is more fragile and less resilient.
For starters, let’s recall how Turkey came to the brink. In 2015, the economy grew about 6%. The inflow of foreign funds, which the Turkish economy needs badly to grow, had fallen short of expectations, but the much-needed foreign exchange was met through Central Bank reserves and savings kept abroad. The first half of 2016 did not go badly, with growth standing at about 5%. In the second half, however, the rate dropped to 1% after a negative growth of 1.3% in the third quarter, which was widely seen as the harbinger of a crisis.
