Salaam
Bro, could you please give the reasons behind this current economic situation for someone who is unfamiliar with the Turkish domestic and international affairs to any serious degree? Thanks.
Ve aleykum Selam Bro,
TL;DR, The main reason is due to exchange rate pressure. As the devaluation of TRY took place much faster than it should have, it brought along price increases, especially in the service sector and trade areas which are more import-oriented.
The PPI index is half of the CPI, so the profitability especially in the field of trade, which is more export-oriented, has increased a lot, and companies that continue their commercial activities in these areas are using the advantages of the low-valued TRY. Looking at the macroeconomic indicators, Turkish exports break ATH records every month. Decades later, we have come to the point of eliminating the current account deficit permanently. In order to pass this stage, the TRY-USD parity must now be balanced, bcs the constantly increased exchange rates could become the problem of exporters in product pricing.
An extraordinary leap is expected in Turkish tourism this year. It has become difficult to make a reservation already, up to 90% occupancy is expected. With the service quality and infrastructure opportunities it offers, Turkey has become almost uncompetitive in terms of price/quality. The same is true for the manufacturing sectors. One of the points that is overlooked here is this: Turkey is a part of the European customs union. All its institutions and the control mechanisms it is subject to are a part of Europe, not Asia, with their standards. Therefore, the comparison of Turkey with Asian economies here stems from the great lack of information.
But, If the increase in the global freight market maintains this course, Turkey has a great opportunity for its economic transformation as a whole, with its logistics and infrastructure facilities. In fact, this is the main dynamic behind the devaluation of TRY and the insistent pressure on lowering the interest rates to become a state policy. However, as I said, the rapid realization of this process, perhaps with dangerous consequences, poses serious problems on the purchasing power of households. The Turkish economy is still fragile and open to foreign interventions; so in Turkish foreign policy, we can clearly see the return of the effort for independence in the economic war. It is also obvious that the rapid decline in the purchasing power of the household over "exchange games" is tried to be used as a means of discipline and punishment against the Turkish state's search for an independent policy. Even the president of the United States has made this clear by his statement. This is where the government's mistake begins. Turkey is trying to fight on multiple fronts at the same time.
When you look at tens of macroeconomic indicators in Turkey such as growth, industrial capacity utilization, annual number of establishments, exports, current account balance, foreign exchange and gold reserves; you will see that the positive indicators are dominantly ahead. If you want, I can give you these numbers one by one. A small sample from the news I just read; S&P revised Turkey's growth figure to 7.4 this year and revised it positively for the third time. A short while ago, the OECD revised Turkey's growth rate again, increasing it from 8.4 to 9. Thus, all credit rating agencies and relevant institutions revised their growth figures in Turkey two or three times, just this year. Turkey, with its economy in transformation, is one of the economies that differentiates positively in the world despite the Covid-19 scourge. Of course, there are many problems and they are being struggled with, but those who interpret the Turkish economy only on the TRY-USD index are 'internet experts' who lack real economic knowledge.
Finally, Turkey has to leave the debt-based economic model. For this, first of all, it is necessary to permanently consolidate the current account balance. A perfect storm is approaching on the global side; All of the countries that do not have a production economy will be hit hard in the coming period. Turkey may be paying some price today, but the next generation will reap the fruits of this sacrifice.
