banner-img

Learning can be easier with EX - Library.

Explore our newest feature, a reliable informational resource you've been looking for!
Join |
Turkish Economy: Future Big Player or Benchwarmer
741 views
0 comm

Turkish Economy: Future Big Player or Benchwarmer

Staff

Turkey's economy and political system have been on a deteriorating track over the past ten years. The macroeconomic indicators began to deteriorate in 2011, became evident in 2013, escalated to apparent authoritarianism in 2016, developed into an economic crisis in March 2018, and culminated in a full-blown depression in March 2020, when the epidemic affected economies all over the world. Turkey's Political Economy has adopted various economic strategies throughout this protracted period of unrest, most of which were at odds with one another, and the numerous shifts have proven difficult for both businesses and investors. However, all of Turkey's economic policies share two essential characteristics: they are all intended to boost economic activity and preserve the banking system's stability.

The Current State of the Turkish Economy

Turkey's economy is in a terrible state right now. According to the most recent numbers, the nation is significantly indebted to foreign investors, totaling $451 billion, and $185,3 billion is the short-term external national debt. Turkey maintains a continuous current account deficit despite the local currency's devaluation due to high energy and commodity costs, which were made worse by Russia's invasion of Ukraine in late February 2022. This indicates that the higher price of imported goods has not sufficiently reduced demand, and the cheaper labor force in Turkey still needs to give the domestic industry a significant competitive advantage to reduce the current account deficit.

Turkey's potential GDP growth rate is between 3-3.5%, compared to a 1-1.5 % population growth rate. The long-term growth potential of the nation is constrained by bad infrastructure investment choices, a flawed educational system, inefficient use of public funds and state bank credits, and low future confidence. The official inflation rate in Turkey is at 83.45%, the highest level in 24 years, and it might reach triple digits if there is a further currency shock. The natural unemployment rate is 10%, but when discouraged workers are taken into account, it approaches 20%. About $300 is the monthly minimum wage, which is what two-thirds of workers make. The youth population, especially the most educated, is determined to emigrate due to widespread poverty and limited prospects. To summarize the scenario, it will be challenging to achieve sustained growth and prosperity; society is losing faith in the future, and this has sparked a wave of young people eager to immigrate to wealthy nations. International authorities should consider the risk that Turkey's social instability will persist into the 2020s.

Outlook for the Turkish Economy

The Turkish economic policy currently depends on FX-protected deposits and F.X. sales by state banks for stability. Strong capital outflows and a widening current account deficit are two characteristics that make both instruments unsustainable and weak. Although there are still accessible doors for external financing, expenses are high, and maturities are short. Even if it is moving more slowly now, the propensity to hide savings under the mattress is still present. The economic stability of Turkey is also being harmed by the conflict in Ukraine and its inflationary effects on the world economy. It's conceivable that there will be another financial shock, and this one will be even worse than the others. This time, the stability of banking institutions and state finances may be in jeopardy.

Turkish lira under the pressure of high inflation

However, the government still has additional tools, such as changes in foreign policy, achieved with the UAE and in progress with Saudi Arabia, to obtain funding to support external deficits. When no more tools are left, the natural outcome will be either policy normalization or stricter capital controls. The first will require the government to admit it made a significant mistake, while the second will shock foreign and domestic investors. The AKP's economic policies can be changed swiftly due to Erdoğan's notorious pragmatism; therefore, it is difficult to say where this story will end. Under the current Political Economy of Turkey, it is impossible to have financial stability, job-creating growth, reductions in inflation, and steady domestic and foreign policies simultaneously.

Solutions to the Current Economic Depression

Whoever is in charge of the government should prioritize maintaining economic stability and reining down inflation. There will only be potential to generate robust growth and enhance economic well-being if resolving these two problems. It is also essential to have an accommodative fiscal policy because small firms and widespread poverty both pose severe financial challenges. Achieving this equilibrium will be challenging for an economy like Turkey's that is highly indebted to hard currency. Reaching medium-term development goals will necessitate tackling problems outside the economy, such as foreign policy and education. The Erdogan government does not have access to IMF money due to Erdogan's reluctance and the United States veto as part of the restrictions imposed by the Countering America's Adversaries Through Sanctions Act (CAATSA). International investors and markets will closely watch the impending presidential and parliamentary elections in June 2023 and the local elections in March 2024 to confirm the start of a new, more stable era.

The current Political Economy of Turkey does not want to implement policy normalization. Even if it were to do so, it would likely have only a limited impact due to the lack of confidence in its policy continuity. Its vision does not include solutions to the country's medium-term economic problems and instead merely puts more pressure on them.

Whoever wins in 2023, whether the present administration or the opposition coalition, will have to fight for a better economy in the face of challenging global financial conditions; following the COVID-19 epidemic, the major central banks of the Western world began to normalize their monetary policies. Turkey's external financing cost will rise due to the most excellent inflation rates in the last 40 years. Nearly half of Turkey's exports go to the U.K. and the E.U., two economies on the verge of recession. The Federal Reserve's monetary contraction strategy in 2023 will likely result in a modest U.S. recession. The Chinese economy is also losing momentum, and other emerging nations that import commodities, including Sri Lanka and Lebanon, are already experiencing severe balance-of-payments issues. Turkey is slipping to the bottom of the developing market rankings and approaching the group of nations, including Pakistan, Tunisia, and Egypt, where foreign lenders have severe doubts about their ability to make timely debt repayments. Therefore, in this challenging international climate, more than good policies and strong public support will be needed to attain medium-term goals.

Learn More with EXIMA News
EXIMA News is here to provide you with all the latest updates on global news. Please look at our News Page to learn more about current events!

You May Also Like

Jan 13
2023
Chinese - Australian Conflict and Trade Relations. Is There Any Bright Future?

Learn about the complex relationship between China and Australia, from historical conflict to modern-day trade. Can the two countries build a brighter future together? Find out more now!

Staff
Comments (0)
Jan 20
2023
Modernisation of the EU-Mexico Global Agreement

Discover the latest on the modernisation of the EU-Mexico Global Agreement and how it affects businesses, international relations, and more! Learn more now.

Staff
Comments (0)
This website uses cookies. By using this website, you consent to our use of these cookies