The eurozone’s gross domestic product (GDP) contracted by 0.6 percent in the first three months of the year, compared with the previous quarter.

The figure was dragged lower by its biggest economy, Germany, falling by 1.7 percent over the same period. Spain and Italy also posted negative figures, but France’s economy beat expectations by growing 0.4 percent over the first quarter – France’s current lockdown measures only began in April.

Germany’s lockdown restrictions have hurt the economy more than expected. /Reuters/Fabian Bimmer

A recession is generally defined as two quarters of negative economic growth. This now applies to the eurozone because its economy also shrank by 0.7 percent in the last quarter of 2020.

The wider European Union, which includes countries that do not use the bloc’s single currency, also contracted but performed slightly better.

For months, economists have warned the gloomy figures were “totally certain” due to problems with the European Union’s vaccination campaign and the measures needed to be taken to tackle the third wave of coronavirus infections sweeping across Europe.

Last year, the pandemic plunged the eurozone into its worst recession since its records began in 1995.

The eurozone’s GDP recovered some ground last summer as lockdown restrictions were eased, but the respite proved to be temporary. The eurozone has now returned to recession for a second time, known as a “double-dip.”

That said, the worst could be over.

Some economists think the eurozone is now on the path to recovery, especially as the European Union begins to distribute its recovery fund worth more than $800 billion.

Italy’s Prime Minister Mario Draghi has unveiled how he plans to spend EU recovery funds. /Reuters/Alberto Pizzoli

Other countries appear to be further along in their economic recovery from the pandemic. This week, the U.S. reported economic growth of 1.6 percent compared with the previous quarter.

China grew by 0.6 percent over the same period, but it posted a record jump of 18.3 percent when compared with the same period one year earlier.

Source(s): Reuters

Source: https://newseu.cgtn.com/news/2021-04-30/Eurozone-enters-double-dip-recession-ZT1rwvbr44/index.html

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So what’s going on in Turkey, and why are its problems triggering such a significant reaction from investors as far away as Tokyo and Toronto? Let’s take a look as the origins of the country’s crisis and what it could mean for global financial markets as we head into the autumn.

The Beginning

Turkey’s President, Recep Tayyip Erdogan, has dominated the country’s political and cultural landscape for much of the past 15 years, winning praise from international investors — and the support of the United States — for steering the country’s reform program, reducing its crippling inflation rate, growing the economy by around 60% in real terms and brokering a difficult peace agreement in the unsettled southeastern region of Kurdistan.

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However, a failed 2016 coup, as well as a series of terrorist incidents related to the fragile Kurdish peace, sparked a notable change in Erdogan’s leadership. Once he regained power in Ankara, Erdogan and his Islamist AK Party plotted a far more conservative course of government, shutting down media outlets, arresting judges and opposition lawmakers and, most notably for foreign investors, pressuring policymakers at the country’s central bank.

Enemy of Interest Rates

Erdogan’s political shift, however, could only be deemed successful by the western-influenced Turkish population if he was able to deliver strong economic growth alongside it. For that reason, he thought it necessary to both urge the country’s banks to lend more money to fuel its expansion, while simultaneously calling for the central bank to cut interest rates in order to make the loans more attractive.

“I am an enemy of interest earnings. I see it as a tool of exploitation,” he said in October 2016, a view he upgraded earlier this year to “the mother of all evil”.

The unsurprising result was a surge in inflation, which now sits at just under 16%, and the long, steady decline in the Lira, which fell 18% against the dollar in 2016 and traded at 3.42 to the dollar in early 2017.

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The Lira slumped to a fresh all-time low of 6.4915 against the dollar Friday, extending its year-to-date plunge past 30%, before paring the decline to 5.99 after a trade delegation of senior government officials left Washington yesterday with no verifiable progress on the White House’s decision to review Turkey’s “duty free” access to the U.S. market.

That restriction is part of an ongoing spat with Ankara over the arrest of the evangelical American pastor Andrew Brunson, whom officials accuse of involvement in the failed 2016 coup.

The modest rebounded was snuffed out, however, by a defiant speech from President Recep Tayyip Erdogan, who urged Turks to take the gold from “under their pillows” and convert it into lira, vowing that “we are only responsible to our own people and our own righteousness.”

President Donald Trump responded via Twitter shortly after, announcing he would double the level of tariffs applied to Turkish steel and aluminium imports, a move that extended the lira’s decline past 6.53 against the dollar and pushed U.S. equity futures deeper into the red.

Turkey is the world’s ninth-largest steel exporter, according to IHS Global data, with around 12% of its total going to the United States, its single biggest buyer.

Dollar Dollar Bills Y’all

Turkey’s biggest, and most immediate, problem is linked to the fact that it can’t support the Lirawith conventional means: Erdogan won’t allow the central bank to raise its benchmark lending rate (which sit at an eye-watering 17.75%) and doesn’t have the requisite amount of U.S. dollars to defend its decline on foreign exchange markets.

In fact, it holds virtually no U.S. dollars in its $80.7 billion worth of foreign currency reserves despite shifting more than $1.7 billion worth of goods to the United State each year. And while China recycles much of its trade cash into U.S. government bonds (it owns around 6.8% of the $18 trillion in outstanding US debt), Turkey prefers to purchase gold, which as fallen more than 7.4% in dollar terms over the past give years, again thanks to its President’s feelings on the mendacity of compound interest.

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Erdogan is left with few choices at present, with the option of backing down on his distaste for interest rate hikes, issuing capital controls or seeking bailout support from the International Monetary Fund.

However, comments last night at a rally in the Black Sea province of Rize suggest he’s not ready to reach for any of them;

“Don’t forget, if they have their dollars, we have our people, our God,” he said. “We are working hard. Look at what we were 16 years ago and look at us now.”

Bank On It

European lenders might be the first, and most significant, casualties from the Turkish meltdown, given their expose to the domestic market on their already-fragile balance sheets. Three major regional lenders — France’s BNP Paribas (BNPQY)  , Spain’s (BBVA) and Italy’s UniCredit (UNCRY) — slumped to the bottom of the Stoxx 600 Friday amid reports that the European Central Bank has expressed concerns for their potential vulnerability to Ankara and their collective €135 billion exposure.

As we’ve seen on many occasions, in Europe and elsewhere, if banks aren’t sure what’s on a rival’s balance sheet, they’re not likely to lend them money. And if they stop lending to each other, it’s not long before they stop lending to the broader economy, which is exactly what Europe doesn’t need as it grapples with Brexit risks and negotiates a new trade arrangement with the United States.

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The euro fell to a 14-month low of 1.1458 against the dollar Friday, while benchmarks in Germany and France fell more than 1%, amid the global market upheaval.

The euro’s decline has pushed the U.S. dollar index, which tracks the greenback against a basket of six global currencies, to a July 2017 high of 96.05 and taken benchmark 10-year U.S. Treasury yields to a multi-week low of 2.89%.

Further emerging market weakness, which would drive the U.S. dollar higher, could both slow the Federal Reserve’s projected path for rate hikes and blunt the ability of American companies to sell their goods in overseas markets as low-priced competitors undercut the surging greenback.

Why it Matters

Turkey’s economy, at around $860 billion, isn’t terribly huge, but it’s four times larger than Greece and around 6.5% of total Eurozone GDP. It’s also a key NATO ally with around 80 million people that sits in one of the most strategically import areas on the globe and has acted as a wedge between Europe and the Gulf region for more than half a century.

A spiralling crisis could entice the more than 3 million Syrian refugees currently residing in Turkey, as well as Turks themselves, into migrating further into the EU, a move that would only harden the resolve of populist political movements in Italy, where the government is already debating the scrapping of a balanced budget clause in the constitution, and elsewhere.

Source: https://www.thestreet.com/markets/turkey-s-currency-crisis-what-happened-what-s-next-why-it-matters-14679835

The post Turkey’s Currency Crisis: What Happened, What’s Next, Why It Matters first appeared on Garner Ted Armstrong Evangelistic Association.