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development and investment bank of turkey


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Well let’s discuss the economic situation in Turkey particularly given president erdogan’s re-election with adal Yelchin professor of international economics at Constance University of applied sciences thanks so much for being with us so inflation is falling it’s just it below 40 so does that mean that erdogan’s unorthodox approach to

Bringing Down inflation is actually working certainly not certainly not what we see is indeed that inflation has declined compared to what we have seen in April from 44 to around 39 however the main reason for this reduction in inflation it has been a so-called zero grasp prices we had elections last month and

President erdogan decided to subsidize household gases and the Statistical Institute in Turkey just interpreted this subsidized prices as a drop in gas prices and that’s the main reason for this low inflation rate but I need to be very clear here this number does not reflect the difficult economic situation

Turkish citizens are facing not only last month but for the last two years so this free gas policy is just a pre-election giveaway then it’s not something that can be kept up long term definitely not the the pre-grass was was a present uh an election related policy

And at the same time we need to uh basically be very clear that turkey’s public deficit has been increasing over the last uh two years for a misguided economic uh interest rate policy so turkey basically has a positive growth rate for the whole economy it’s one of the fastest growing economies but this

Growth is driven by very low interest rates and high debt private and also public debt but this cannot and is not a sustainable policy and therefore the the space for maneuver in Turkey is very small and that’s the reason I think why the government also has been appointing

Uh new people with a different credibility with respect to economic power policy yeah there are new people in place and the noises that we’ve been getting from them on the sort of economic approach are the sort of thing that investors would have wanted to hear particularly about you know focusing on

Inflation and at least hinting at the idea of a a change in Direction but is there actually likely to be one yeah I mean mehmed shimshek has been appointed a finance minister he was already Finance Minister before the misguided interest rate policy started and he made a very remarkable statement

When he came to power over the weekend he said we will return to a Orthodox policy uh based on rational grounds meaning he obviously criticized also the past policy and as you rightly indicate the big question is in how far the new finance minister jointly with a central bank can really

Implement an orthodox policy because we have seen in the past that the preferences of the president of Turkey has been always having high growth rate whatever the price is for inflation and the exchange rate the Lira has been depreciating heavily so the next weeks already will decide on uh in how far we

Can trust on what the new Finance Minister has declared so far because erdogan has aligned himself so closely with this policy this unorthodox policy up until now is it even possible for there to be a back pedaling and a change in policy that also manages to save face for president erdogan

Yeah this is the big question you know Turkey is in actually in the worst situation you can imagine on the one hand turkey needs growth because it has a huge young population and on the other hand the reserves of the Central Bank have been depleted trust has been

Destroyed so there will be no painless return to an orthodox policy so uh then my expectation is that the challenge for the new Finance Minister will be keeping the balance satisfying the expectation of the president still with a positive growth rate and on the other hand reducing this debt driven growth by

Increasing interest rate and stabilizing the the Turkish currency however it is very unlikely to keep growth at these levels and at the same time stabilizing the macroeconomic indicator so there will be this political uh challenge that the minister has to face either uh gaining trust and support from International

Investors or having this uh potential dispute with the president with respect to a declining heavily declining uh National Economic growth rate and we should talk about the Turkish people and how they feel about their current economic situation because they’re presumably undergoing some hardship through the state of inflation and the

The weakness of the layer but at the same time president erdogan has just been re-elected despite aligning himself very closely with those economic policies so what’s happening there do they not blame erdogan for that situation or is it not affecting them as much as we might think

I think you know electing a president definitely is not only an issue about the economic situation actually this for erdogan the situation couldn’t have been worse we had also this terrible earthquake in February and the management was very problematic until today it’s not very clear what is happening in the Southeastern earthquake

Region but still people elected him my expected understanding is that the opposition parties did not present a convincing Alternative Program not only with respect to economics but also to these difficult topics like how the relations should look like in the future with respect to the European Union what is the standing in international

Political topics Eragon seems to have much more trust in in the majority of the society with respect to this political issues or differently stated erdogan won these elections I believe caused the opposition was simply too weak with its arguments you mentioned the earthquake the human cost of which is you know unfathomable

But in terms of the economic costs to Turkey it appears it’s going to have a major effect on GDP for this year but if we can set that aside is the Turkish economy in decline or is it is it is it recovering from these policies that have been in place for the

Past few years the Turkish economy in real terms is in Decline and the reason is what we have seen over the last two years particularly after the introduction of this low interest rate policy real investment has been on the decline just to give you some examples but there was

The intention of Germany’s biggest car producer Volkswagen to invest 1 billion euros in Turkey to produce uh cars but they stopped this investment and many other examples can be listed here so and in in per capita income for example today the average household in Turkey earns less than what uh what the Turkish

Household was earning in the year 2008 so the individual decline in income is obvious and this is now coupled with a challenge that there will be not a Costless return to a conventional economic policy it is very likely that we will serve still a decline in the coming months and potentially years for

The Turkish economy until the macroeconomic policy has been normalized and it’s going to be interesting to see where the Turkish economy goes under a renewed president erdogan a professor of international economics at Constance University of applied sciences thank you so much for joining us again on DW business thank you

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