Turkey is preparing for possibly the most crucial elections since the founding of the republic a hundred years ago. Meanwhile, the country is struggling with sky-high inflation and disappointing economic growth. The question is whether the unorthodox policy of Turkish President Recep Tayyip Erdogan will bear fruit.
“High inflation in particular is a major problem. The purchasing power of the population is therefore under pressure,” says economist Theo Smid of Atradius. “Furthermore, the central bank no longer operates independently of politics since the bank president has changed several times.”
Since then, President Erdogan has pursued an unorthodox monetary policy. He assumes that interest rates must be lowered further to combat inflation. Economists assume the opposite. Prices in Turkey were no less than 43.7 percent higher in April than one year previously. In October and November inflation even reached a record level of 85 percent.
“Erdogan thinks he can boost the economy with his policy and continues to do so. But after the elections that will probably change and we think there will be interest rate increases. Only then can the high inflation be tackled,” says Smid.
Despite the strong headwind, Turkey’s economy is still growing. The country has weathered the corona crisis relatively well. In 2021, the economy even grew by 11.4 percent. This peak was short-lived. Growth fell to 5.6 percent last year. Atradius expects growth of 1 percent this year, which is close to the average growth in Europe.
Model is not sustainable
The problem for Turkey is that the policy must above all ensure even more economic growth. But that is not a sustainable model.
“Growth is slowing this year despite fiscal policies that include an increase in public investment and social spending measures to support private consumption,” says Smid. “These measures include an increase in the minimum wage, a major social housing project, credit subsidies and the abolition of income tax on the minimum wage.”
Turkey is also dealing with the aftermath of the devastating earthquake in the southeast of the country. The economy in provinces such as Hatay, Gaziantep and Adiyaman is virtually at a standstill. The region has already suffered a major blow in recent years: trade is hardly possible due to the civil war in Syria.
Damage to the economy is not too bad
According to Smid, the damage to the Turkish economy as a whole is still manageable. “There is therefore about 0.5 percentage point less growth in 2023. The affected area accounts for about 10 percent of the gross domestic product.”
So the blow will not be as hard as the 1999 earthquake around Izmit, near Istanbul. That is the economic center of the country. Then the Turkish economy contracted by 3.3 percent after a growth of 3 percent the year before. A year later, the Turkish economy rebounded with a growth of 6.9 percent.
The main question now is how quickly the reconstruction will take place. This will cost the Turkish treasury a lot of money. But the construction of new houses and apartments also generates a lot of economic activity. And that can boost the economy considerably.
2023-05-10 03:11:31
#Turks #polls #prices #skyrocket #Economy
