Volkan Korkmazer
The CBRT inflation target for the end of 2021 is approximately 12% and the current lending rate is 19% in Turkey Markets.
If the inflation figures for the end of 2021 reach the targets, it means that we are giving positive real interest rates. On the contrary, it means that the negative real interest application still continues.
If the inflation will be realised for the end of 2021 are 19% or more, it means that CBRT has been providing Negative Real Interest Rates for the last 2 years to the Markets.
Important Note: Because real interest is not calculated according to past actual inflation rates ( Present Inflation Rates ) . Real Interest is calculated by the difference between the Central Bank Interest Rate and the Target Inflation Rate at the end of the year ( Future Inflation Rates).
General Risks Covering the Whole World Over The Inflation :
1) Climate Change Risks: To increase in the prices of fresh fruits & vegetables & all agricultural products are expected in Future 10 years because of the climate changes and extreme drought in the world.
2) Energy Prices : In addition, West Texas Oil prices will be expected to see an average range of 66-86 USD in 2021.
3) Effects of Covid-19: In the recovery period of the deteriorated Supply Chains, excessive volatility and an upward trend are expected in the prices of consumption, intermediate goods and raw materials in general.
4) Quantitive Easing (QE) of Developed Markets: Monetary Purchasing Power is expected to decline rapidly in emerging markets because of QE Of Developed Markets.
If we examine the realistic analyses, it is not expected that the inflation data of Turkish Markets expected to take place in 2021 will come below 17% in terms of under the above four major effects. The most important effect on inflation of Turkish Markets is the pressure of the increase in the exchange rate on inflation in the past 6 months and then first in the PPI and then in the CPI, while the effect of the exchange rate pressure and inflation is reflected more rapidly with the effect of the Covid-19 pandemic.
As a result, according to these data, the CBRT currently applies an estimated neutral or near-negative real interest rate.
In Turkey, in periods when the PPI falls below the CPI, it generally has several common features:
1) When TRL gains value, that is, when foreign exchange prices stabilize
2) When oil prices are in a decrease trend and do not create inflationary pressure…
3) When the Production Capacity Utilization Rate in Industry is high…
4) When Turkish Banks’ Credits & Loans are generally increase in Total Actives and The Banks’ appetite in the loan market is normal or high…
5) Periods in which the Decrease in Foreign Exchange Deposit Accounts of Domestic Residents in Turkish Banks…
With the decrease in the profitability of the companies that cannot reflect the high costs in Industry and Services to consumer prices during the periods of high PPI, the real sector begins to experience an intense loss of capital, which ultimately leads to a deterioration in the quality of the receivables in the loan portfolios within the assets of the banks.
The deterioration of the capital structure in the private sector leads to a decrease in the appetite of the banks and a contraction in the volume of loans they place on the market.
The government is expected to take extra measures against the possibility of the market, which is already in recession, moving towards an even more severe recession with the narrowing of access to credit.
What are the Structural Problems of the Turkish Economy?
The Turkish Economy, with its insufficient capital structure, has maintained its growth trend by borrowing from the credit market for years.
Among the 83.2 million country population, approximately 300,000 people have a bank account over 1 Mio TRL ( approximately 115.000 $ ) or more.
When PPI was higher than CPI, It starts The upward trend of bank accounts in Foreign Exchange Deposit Accounts…
How could be PPI / CPI ratio is over 2.0 ?
While DTH accounts of Domestic Residents were approximately 190 Mia USD in September 2020, this figure reached 236.5 Mia USD in December 2020.
It is 228,5 Mia $ in week of 11th June.
In addition, we have the Private Sector gold reserve, which is the 2nd in the world after India, with a gold reserve of approximately 3,200 tons, known as under the pillow, excluding bank accounts.
The Important Question :
Why The Limited capital is away from direct investment and parked in Foreign Exchange Accounts and Under the pillow ( Out Of Markets) by limited audience.
In general, the main reason for this is that it stems from the structural problems of the Turkish Economy.
Although few of the capital owners position themselves knowing this fact, most of them instinctively do it in the waiting mechanism in safe harbors.
For example, HSBC Turkey, which has been analyzing and interpreting this unknown protection mechanism that has been in the subconscious of the capital owner for many years, has left corporate banking and provides only retail banking services.
Three Major Structural Problems of the Turkish Economy:
1) The density of the sectors in the GNP:
This is the basic and powerfull indicator of the economy…
The sectors should has Over the 50 % in GNP That have great power of competitive and independency from global markets and essentially closed of regional and worldwide fluctuations…
there is a concentration of the construction and infrastructure sector, which varies between 25-30% in Turkish Markets
and the service sector, which is at the level of 30-35 in Turkish Markets.
When the growth of the service, construction and infrastructure sectors stops, the Turkish economy also weakens.
This sectoral concentration, which is most rapidly affected by periodicities and economic fluctuations, is the firstly visible soft belly of the economy, that is, its weakness.
Important note: In an economic infrastructure where the share of high technology and high value added sectors in the industry in GNP is 60% and above, the Turkish Economy will be more robust against external shocks, economic fluctuations, periodicities and political changes. Among the policies carried out to strengthen the sectors It is clear that the most successful programs are the projects and programs carried out under the Presidency of Defense Industries. We can analys industry in Turkish Markets with other articles..
2) Curent Deficit:
Turkish Markets are a direct importer of oil consumption, which is the main input of industry and trade.
Markets have basicly an annual average oil import of 45-55 Mia UD. (This figure rises or falls according to oil prices.) We have oil imports as much as our current account deficit.
Industry has dependent on imported intermediate goods in Turkey.
Approximately 60% of the industry in the real sector produces with imported intermediate goods.
In the meantime, it is a great success that the Public Defense Industry has reduced this rate from 90% to 30% in imported intermediate goods dependency.
The most important reason behind the economic sanctions imposed on Turkey in recent years is that the Turkish Defense Industry is moving towards independence. An important and undeniable success. It should be applauded.
Looking at the total borrowing requirement, the Real and Public sectors should borrow from abroad at least 60 Billion $ each year and have to renew their existing debts.
An average of 60 Billion $ additional debt comes as a burden (tax-debt) due to the above two main structural problems.
Any Government that simply wants to be successful has to raise 300 Billion $ in an average of 5 years.
The pains of leaving the classical Keynesian Model, which is focused on the existing construction and service sector expansion in Turkey, still continue.
Strategic Information: As a result, the Turkish economy has to reduce its debt burden by devaluing at least once every 5 years and maximum every 8 years.
It is expected that a Government that wants to be successful in the Turkish Economy will concentrate on the creation of classical non-borrowing resources.
It is clear that it will want to support foreign investors with direct investment incentives for technology transfer, know-how transfer, creation of new powerfull eco-systems, creation of new employments and overcoming structural problems.
Although Defense Industry policies are predominantly successful among the current Government’s policies, incentive programs have not yet reached the emergence of Global Companies that will have a more significant impact on the World Economy.
The Turkish Economy is expected to have policies and strategies to consider as the first priority, in order to reduce the share of sectors that are rapidly effected by periodic and geopolitical risks within the GNP to 20% unless not to decrease volume.
The Government will be able to achieve a strong success in the next 10 years, which has a policy that will be reach the share of the industry in the GNP to over 60% and the share of agriculture to the level of 20%
In order to realize this change, perhaps only Turkey is the country that makes the most incentive applications through different channels.
In general, there is no database that can measure the effect of the incentives on the economy in the short, medium and long term.
Turkish Markets need a great database for viewing KPI ( Key Performance Indicators) and effects of Policy over the Markets
Unemployment and Demographic Growth:
Turkey is one of the countries with the fastest growing population and the youngest population in the world.
In the analyzes published in 2010, Turkey’s population, which was targeted to reach 76 Mio in 2020, But Turkey’s Population has reached 83.2 Mio, which is one of the most important issues to be considered.
An average of 2 million students graduate from high schools and universities each year and are looking for a job in the job market. Approximately 8% of the total employment market is offered to a young population every year.
In fact, if the Turkish economy has a growth trend of more than 7% on average, it is estimated that it will be able to catch up with the demographic growth.
In fact, if the Turkish economy has a growth trend of more than 7% on average, it is estimated that it will be able to catch up with the demographic growth.
Otherwise, the population supplied to the workforce has the potential to seriously change the country’s economy and politics
From this point of view, we can say that the quality of education offered to young people, the efficiency of the environment, and the natural markets (powerfull eco-systems) that will feed new job and entrepreneurship opportunities are really important for the future of the Turkish Economy in the short and medium term.
Important Note: Although it is one of the important topics of the agenda, I hope we can detail the detailed subject under another heading on efficient powerfull eco-system analyzes and examples in order not to tire the readers.
Today, all resources are transferred to these topics for the establishment of efficient eco-system infrastructures in all developed markets.
From this point of view, can we say that the Turkish Economy has shrunk in real terms for the last 2 years in all growth figures declared as standard?
To read the full article: https://www.linkedin.com/pulse/overview-turkish-economy-2021-volkan-korkmazer/?published=t