Bankruptcies ‘likely to surge in 2017 amid lira plunge’

ISTANBUL

The number of corporate bankruptcies will likely increase 4 percent in 2017 from the previous year, as losses in the value of the Turkish Lira hit companies that hold debts in foreign exchange currencies, a leading credit insurance company stated on Nov. 15.

A total of 12,800 corporate bankruptcies are expected this year, according to Euler Hermes, which revealed its projections about the economic outlook in Istanbul.

The company projected that bankruptcies in Turkey will see a nearly 4 percent decline in 2018, regressing to around 12,300, mainly thanks to support from the Credit Guarantee Fund (KGF) and loan restructuring moves, Reuters reported, quoting a follow-up press release.

That rate will still, however, be around 30 percent higher than figures from a decade ago, Euler Hermes added.

Euler Hermes chief economist Ludovic Subran said the inflation rate was a major problem for Turkey, in addition to the decline in value of the Turkish Lira.

“In theory, Turkey should have more benefited from foreign investments as it is in a stronger growth path than its peers, but it could not. The problem here is inflation, which makes a big difference. Another element is political. Some funds are concerned about taking bigger risks in Turkey. A very active political discourse is dominant in Turkey, exemplified by what happened in relations with Germany … These have all raised volatility,” Subran said, as quoted by Reuters.

Euler Hermes forecasted that the Turkish economy would grow 5.2 percent in 2017 and 3.5 percent in 2018, describing the country’s high current account deficit as its “Achilles heel.”

It also forecasted that the inflation would remain in double-digits in 2017.

Inflation may decrease to 9 percent in 2018, while the loss in the lira’s value will likely be around 10 percent, it added.

According to Euler Hermes, the current account gap-to-GDP will remain above 4 percent in 2018.
In 2018 Turkey’s textiles, machinery, chemicals, automotive and agricultural sectors will have the highest export potential, it projected.

The company forecasted that the country’s industrial production activity would continue to support its economic growth and rise in the upcoming period.

Euler Hermes chief  economist Ludovic Subran has mentioned Turkey’s high inflation and harsh political discourse as question mark for foreign investors.