A German and a Turk, or a Japanese and a South African, are all looking for similar amenities in life: a nice home, a good car, a flat screen TV in the living room, a smart phone, vacation at a nice resort...
In order to get elected, governments have to make people’s dreams come true, and to do this they need to achieve high levels of growth.
The percentage GNP growth, however, is a big illusion. Take Germany and Turkey for example; when Germany grows by just 1.5%, which roughly corresponds to 49.5 B US$, Turkey has to grow by about 5% to achieve the same level of nominal growth. This is owing to the fact that the GNP’s of Germany and Turkey are 3.3 Trillion US$ and 850 B US$ respectively.
By definition, Developed Markets (DM) has more savings and more wealth per capita, which mean that the Emerging Markets (EM) has to first reach a certain threshold of savings before they can achieve the level of wealth that will enable each person to enjoy the basic amenities of life.
It is inherent that EM countries have to work harder and run faster. A country such as China has to achieve growth rates up to 7.5% just to create enough jobs for its vast pool of people year after year.
It is a common fact that sprinters cannot run long distances at the same speed and a sustainable speed is only feasible at a lower but steady pace.
Since the global financial crisis of 2008, the cheap money policies of DM countries have made it easy for all EM countries to borrow heavily and hence run faster to make their citizens happy. Turkey was no exception. Turkish corporations have borrowed heavily to achieve high growth rates and carried the whole country to phenomenal growth rates, the latest of which was 7.5% in 2017.
The unsustainable growth rates of the past decade has created a bubble in the EM which was just waiting for an excuse to burst and you can always find a couple of all too powerful and trigger happy politicians to do just that.
The raising interest rates of the FED coupled by a brawl between US and Turkish Presidents supplied the light to the fuse and Turkey was hit by an EM financial crisis in the 2nd half of 2018. This financial tsunami has wiped of almost 45% of Turkish Lira’s value and crashed the stock market to its lowest value since 2008.
The inflation will probably reach a whopping 20% per annum by the end of 2018 and this translates directly to a loss of buying power for common people.
Sounds like disaster? Not exactly, as per capita GNP of Turkey has tripled since 2002 and in the flow of things the financial crisis of 2018 can be regarded as a correction; a mere speeding ticket, before Turkey and similar EM countries start sprinting again to reach yet another breather somewhere in the not too distant horizon.