Will Turkey's economic woes reach Europe? - Canadanewsmedia
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Will Turkey's economic woes reach Europe?

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Turkey’s embattled lira on Friday hit new record lows against the US dollar, losing some 5 percent in value. The lira went into free fall, sinking more than 12 percent at one point to reach an all-time low.

It has now lost more than a third of its value this year against the US dollar and the euro.

The plunge comes amid growing fears over the exposure of European banks. Tensions with the United States also show no sign of easing, as Washington piles more pressure on Ankara with sanctions after a meeting between a Turkish delegation and US officials in Washington yielded no apparent solution to a spat over the detention in Turkey of an evangelical American pastor.

Read more: Turkish lira hits record low as US sanctions bite

More broadly, concerns over the sickly Turkish economy’s wider impact were intensified Friday by a report in the Financial Times that the supervisory wing of the European Central Bank had begun to look more closely at eurozone lenders’ exposure to the country.

Ask the president

Deepening investor concerns about Turkey’s authoritarian trajectory under President Recep Tayyip Erdogan and the economic fallout have also weighed on the currency. Markets are concerned over the direction of economic policy in Turkey, where inflation has hit nearly 16 percent while the central bank remains reluctant to raise rates in response.

Speaking to supporters in the Black Sea province of Rize late on Thursday, Erdogan dismissed concerns over the currency as a campaign against his country. “There are various campaigns being carried out. Don’t heed them,” Erdogan said.

Read more: Turkish economy facing major challenges

“Don’t forget, if they have their dollars, we have our people, our God. We are working hard. Look at what we were 16 years ago and look at us now,” he said. On Friday, Turkish Finance Minister Berat Albayrak — at the same time Erdogan’s son-in-law — prepared to unveil the government’s latest plan for country’s economy.

Turkish economist Korkut Boratav sees the need for urgent action: “The economy is fragile. Due to the foreign debts of companies and banks and the current account deficit, there is a great need for foreign capital.”

What about the eurozone?

A new analysis by Berenberg Bank sees little long-term impact of high Turkish inflation and low interest rates on eurozone gross domestic product (GDP) growth. “Even if eurozone goods exports to Turkey were to fall by, say, 20 percent, this would subtract no more than 0.1 percentage point from growth in the big eurozone,” according to the report.

Even Turkey’s annual GDP, which is around €750 billion ($860 billion), is only equivalent to 6.5 percent of the eurozone’s GDP. Though this is four times larger than Greece’s, it is still “less than half the size of the Italian economy, despite Turkey’s larger population of around 80 million versus around 60 million for Italy,” according to the analysis. 

Furthermore, the bank sees hope in other recent crises, like the attempted coup in 2016. Even though the Turkish economy shrank in its aftermath , eurozone confidence remained unchanged and credit growth even rose during the period.

Read more: Will Turks heed Erdogan’s calls to sell dollars and buy liras?

And even if eurozone exports to Turkey fell through the floor, previous experience has shown that European companies are “pretty quick in identifying and switching to new markets. Selling more elsewhere would offset some of the hypothetical decline in eurozone exports to Turkey.” Once any crisis was over, the bank expects exports to recover quickly.

Too little, too late?

Obviously, a real Turkish crisis would have knock-on effects, though Berenberg sees Europe’s exposure to Turkish banks as being too small to cause much harm. Even in the worst-case scenario, “bank supervisors in the eurozone would have sufficient tools at their disposal to contain the damage,” making a credit crunch in any part of the eurozone highly unlikely, concludes the upbeat analysis.  

Korkut Boratav is more concerned and thinks an intervention by the IMF is the only way to save the European banks. “The Europeans should have known that they should not lend to distressed banks,” criticizes Boratav. “This is one of the most important principles of the free market economy — if you lend money, you take a risk and must accept the losses.”

tr/uhe (Reuters, dpa, AFP)

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Global Slowdown Looks More Likely in Trade Turmoil: Economy This Week

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  1. Global Slowdown Looks More Likely in Trade Turmoil: Economy This Week  Bloomberg
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Fed's Powell still has a chance to save the economy before it's too late, Cramer says

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With a month left until the Federal Reserve’s next widely expected interest rate hike, Fed Chair Jerome Powell is facing a critical juncture that could determine the trajectory of the U.S. economy, CNBC’s Jim Cramer said Thursday.

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After hearing Powell’s remarks in a Wednesday interview with Dallas Fed President Robert Kaplan, Cramer felt that for the first time, Powell was growing cautious about the pace at which the Fed is raising rates. The central bank has said it plans to raise rates once more in December and three times in 2019.

In a question-and-answer session during the interview in Dallas, Powell acknowledged that the pace of global economic growth was slowing, but said it was “not a terrible slowdown.” Earlier this year, Powell said the Fed was “a long way” from neutral interest rates, signaling more hikes to come.

“Kaplan’s questions allowed Powell to walk back his sadly intemperate comments from October, comments that seemed to be almost blithely oblivious to some of the more worrisome data out there,” Cramer reflected on “Mad Money.” “After all, there are degrees of slowdowns that, nonetheless, can cause an awful lot of havoc and cost a lot of jobs, and that’s what we’re on the verge of here.”

And after last night, it became clear that “Powell gets it, too,” Cramer said. The central bank chief is realizing that “there’s another side” to the U.S. economy that is splintering under the dual pressures of higher rates and higher tariffs, he said.

“Is it too late? Yes, if we get four more hikes. Absolutely. No if we only get one and we wait,” the “Mad Money” host said. “Powell knows now that normalizing interest rates isn’t the goal — no one knows what normal is these days anyway.”

Instead, Powell has realized his job is to taper the “end-of-cycle talk” that has been filtering through the stock market and the broader economy and that many see as being tied to his rate hikes and the president’s tariffs, Cramer said.

“We know Powell’s now concerned that we actually could be at the end of the economic expansion. That’s a soft reversal of his earlier position from just one month ago, when he was so wedded to the explosive-growth conceit that he talked about overshooting with rate hikes to stamp out inflation,” the “Mad Money” host said. “The guy’s clearly paying attention to the data now. You know what? That’s all you can ask for.”

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Cramer says CEOs are telling him off the record the economy has quickly cooled

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Company leaders across industries are telling Jim Cramer — off the record — that they’re worried about a slowdown in the U.S. economy, Cramer said Thursday on CNBC.

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“So many CEOs have told me about how quickly things have cooled,” the “Mad Money” host said. “So many of them are baffled that we could find ourselves in this late-cycle dilemma that wasn’t supposed to occur so soon.”

Cramer has been warning investors for weeks about a manmade slowdown in the U.S. economy, fueled by the two-pronged pressures of the Federal Reserve’s interest rate hikes and the Trump administration’s tariffs. Now, high-profile CEOs are worried about growth slowing so drastically that it could actually hurt the economy, he said.

“There are degrees of slowdowns that, nonetheless, can cause an awful lot of havoc and cost a lot of jobs, and that’s what we’re on the verge of here,” he said. “That’s what the markets are saying. That’s what the CEOs are worried about offline.”

The situation reminded Cramer of when, on the cusp of the 2008 financial crisis, his corporate sources confided in him that the Fed “seemed to be out of touch … with what was happening” on Wall Street, he said. That led to his now-famous “They know nothing!” rant blasting the Fed for its lack of diligence.

“I was right,” he said. “I did my best and, at that time, I made a resolution. If I thought we would ever get back into one of these situations again, I promised myself I’d be vocal about what could go wrong, even if I knew it wouldn’t be as serious as the Great Recession.”

Now, with market commentators warning about the U.S. economy being “late” in its cycle, meaning that another recession could be on the horizon, Cramer’s getting vocal.

Weakness in Europe and Asia’s economies isn’t helping, he said, pegging the respective slowdowns to Brexit pressures and instability in the Italian government and China undergoing a mass slowdown tied to President Donald Trump’s tariffs.

If the Fed and Trump stay the course on their policies, the weakness will feed into the stock market as it did on Thursday, the “Mad Money” host warned. The action in shares of Walmart, Home Depot and Macy’s told the story, he said: all three companies recently reported strong quarters, but subsequently saw their stocks plummet on economic fears.

“This end-of-cycle logic raises its head everywhere,” Cramer said. “Everything was good, so good that it can’t ever be better because we’re at the end of the cycle. ‘Late-cycle.’ It’s become almost circular reasoning. The stock can’t go higher because it’s the end of the cycle and it’s the end of the cycle because the stock’s down.”

That, combined with the chief executives’ warnings, told Cramer that stocks can’t possibly be safe while the bearish narrative about debilitating economic weakness reigns supreme.

“If the Fed changes course and says ‘No more rate hikes … next year unless the data gets more positive,’ or if President Trump gets a trade deal with China or even does this kind of truce, then the end-of-cycle proponents may have to change their tune and the market can rocket higher,” he said. “Otherwise, though, rallies like today are going to be used to re-position portfolios because the bears have the late-cycle microphone and they just will not let go.”

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Call Cramer: 1-800-743-CNBC

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