Unpredictable interest rates and high inflation have become a bane for businesses in Turkey, making costs prohibitive and making access to financing impossible at a time when demand is declining.
The clothing and textile industries, the pillars of Turkish manufacturing, are among those most affected by the inflation that remains stubbornly above 60% -12 times above the official target of the Central Bank- and the launch of the bank’s base interest rate to 50% since April, creating suffocating conditions for businesses.
For export-oriented businesses such as the clothing industry, problems are compounded by reduced demand from buyers in Europe, Turkey’s biggest export market, and a strong pound, Ramazan Kaya, the head of the Turkish Garment Manufacturers Association, said in recent days. . While the Turkish lira has fallen 13% this year against the dollar – one of the worst performers in emerging markets – exporters say it is still very strong.
And while the industry recognizes that inflation needs to be tamed, companies are running out of liquidity, with access to finance impossible or extremely expensive, Kaya said.
The number of locks skyrocketed
The Association of Chambers and Commodity Exchanges of Turkey, the country’s largest business group, announced in July that nearly 40 percent more businesses closed compared to the same month in 2023.
GDP data will be released on Monday and is expected to contract 0.5% in the second quarter from a 2.4% expansion in the previous three months, according to the average survey forecast by Bloomberg.
The key challenge for Finance Minister Mehmet Simsek is to ensure that inflation is reduced without causing too much damage.
The shift to high interest rates
Business confidence fell for four straight months and hit its lowest level since 2020 in June. Export orders, employment, output, capital investment and the assessment for the next three months were among the reasons for the decline, the central bank said.
For years, Turkish companies benefited from one of the most negative interest rates in the world, accessing single-digit loans when inflation hovered above 80%. That changed in May last year, when Erdogan ended the era of cheap money by approving a move to a more investor-friendly economic program that sought to stabilize prices with higher interest rates.
Economic developments
Turkey’s annual growth for 2024 and 2025 is expected to be 3.2% and 3.4% respectively, according to Bloomberg Economics, compared to averages of more than 5% seen in the decade before the pandemic.
Turkish authorities are expected to cut official growth forecasts for this year and next, according to a source cited by Bloomberg.
OR seasonally adjusted unemployment rose to 9.2% in Junethe highest in a year, and there are concerns that this could increase as businesses face high labor costs and shrinking equity. “We see that 400-500 of our companies have lost their production capacity,” said Berke Icten, head of the Turkish Footwear Manufacturers Association.
“Demand indicators in the second quarter suggest a slowdown compared to the first quarter, although still at inflationary levels,” the central bank said in August.
The slowdown in credit expansion is expected to help balance domestic demand and help lower inflation, he added.
Source: ot.gr
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