Five months of Mehmet Şimşek in 11 articles
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Five months have passed since Mehmet Şimşek took office as the boss of the economy. Here are what happened in the economy during this period under 11 headings…
Exactly five months have passed since Mehmet Şimşek took office as Minister of Treasury and Finance on June 4.
Due to the impact of the interest and exchange rate policies implemented before the election, the current account deficit exploded along with inflation and the reserves were depleted. Türkiye was on the verge of a balance of payments crisis.
After the election, the government took a U-turn in its economic management and policies. While interest rates are increasing rapidly, dollar Kuru was partially released. Historical tax increases, especially fuel and MTV, were made.
Şimşek’s promise was to attract foreign capital and eliminate the risk of a balance of payments crisis, reduce domestic demand and reduce inflation.
In the past five months, inflation has risen rapidly, along with exchange rate and tax increases, and real wages have eroded. Although the risk of balance of payments crisis has decreased, the expected foreign capital has not arrived yet.
The slowdown in the economy stands as a potential area of tension between the government and economic management.
DOLLAR/TL
The dollar exchange rate, which was 20.95 when Şimşek took office, is today at 28.40.
In the intervening five months, the exchange rate increased by 35.6 percent.
The government’s forecasts in the Medium Term Program indicate that the exchange rate is expected to rise to 29.9 TL by the end of 2023.
INTEREST
After Şimşek took office, Gaye Erkan was appointed as the President of the Central Bank (CBRT). The CBRT, under the chairmanship of Erkan, increased the policy rate from 8.5 percent to a record level of 35 percent in the past five months.
During this period, average TL deposit interest rates with a maturity of up to three months showed a limited increase from 39.42 percent to 41.72 percent.
During this period, average loan interest rates increased from 40 percent to 60 percent for consumer loans, from 15 percent to 49 percent for commercial loans, from 32 percent to 45 percent for vehicles, and from 18 percent to 41 percent for housing loans.
During this period, the two-year benchmark bond interest also increased from 15 percent to 37 percent.
INFLATION
Official consumer inflation, which was 39.59 percent on an annual basis when Şimşek took office, is at 61.36 percent as of October.
Istanbul Istanbul inflation rate, which was 56.05 percent in May, was announced as 72.73 percent in October.
ENAG inflation, which was 109.01 percent in May, reached 126.18 percent in October.
CBRT expects official inflation to be 65 percent by the end of 2023 and 36 percent by the end of 2024.
INDUSTRIAL PRODUCTION
In May, industrial production decreased by 1.4 percent on a monthly basis and 0.2 percent on an annual basis. The earthquakes in February were effective in keeping the annual increase low.
In August, there was a 0.8 percent decrease in industry on a monthly basis and a 3.1 percent increase on an annual basis.
On the other hand, industrial production, which indicated expansion with a PMI value of 51.5 in May, indicated a slowdown with 48.4 in October. While new orders experienced the steepest slowdown in nearly a year, employment began to decline again.
UNEMPLOYMENT
In May, the narrowly defined unemployment rate was announced as 9.5 percent and the broadly defined unemployment rate as 22.5 percent.
In August, the narrowly defined unemployment rate decreased to 9.2 percent, while the broadly defined unemployment rate increased to 23 percent.
Employment, which was 31 million 716 thousand in May, decreased to 31 million 686 thousand in August.
The broadly defined number of unemployed people, which was 8 million 567 thousand in May, increased by 272 thousand in three months to 8 million 839 thousand in August.
CURRENT ACCOUNT DEFICIT
When Şimşek took office, one of the most burning problems he found on his desk was the current account deficit.
In May, the current account deficit was at the level of 7.9 billion dollars on a monthly basis and 60.5 billion dollars on a cumulative twelve-month basis.
In August, the current account deficit was 619 million dollars monthly and 57 billion dollars annually.
Although the current account deficit decreased due to tourism revenues in the summer months, the desired decrease has not been achieved yet.
THE FOREIGN TRADE DEFICIT
In May, the foreign trade deficit reached historical highs of 12.5 billion dollars. In September, this figure reached 5 billion dollars.
The ratio of exports to imports, which was 63.4 percent in May, increased to 81.8 percent in September.
On the other hand, the foreign trade deficit in the January-September period broke a record with 87.2 billion dollars.
FOREIGN ENTRANCES
In the five months before Şimşek took office, there was a total net foreign outflow of 1.6 billion dollars in Borsa Istanbul.
In the five months that Şimşek was in office, there was a net foreign inflow to the stock market of 1 billion 14 million dollars.
Although there was foreign inflow to the stock market in June and July, the situation has reversed in the last three months. There was a net foreign outflow of $915 million in the last 12 weeks.
In the five months before Lightning, there was a net foreign outflow of 27 million dollars in the government domestic debt securities (GDBS) market. In the five months of Şimşek’s term, there was a net foreign inflow of 500 million dollars.
Although there was a net foreign inflow to the stock and bond markets during the Şimşek period, the volume remained below expectations.
World The Bank’s announcement that it would offer an additional loan facility of $18 billion to Turkey within three years drew attention as the most important concrete foreign commitment of this period.
The United Arab Emirates (UAE) has also committed to invest 50.8 billion dollars in Turkey within three years, but it has not been announced in which areas and with what timetable these investments will be implemented.
RESERVE
The net reserves of the Central Bank (CBRT) reached a historical low of -5.7 billion dollars on June 2, 2023.
As of June 2, gross reserve was 100.5 billion dollars, net reserve excluding swaps was -61.2 billion dollars.
As of October 27, net reserve was 25.2 billion dollars, gross reserve was 126.6 billion dollars, net reserve excluding swaps was -56.4 billion dollars.
Following the outflow of money of unknown source of 14.9 billion dollars in the three months before the election, the inflow of money of unknown source of 16.3 billion dollars in the three months after the election was effective in the increase in reserves.
RISK PREMIUM
Turkey’s credit risk premium (CDS), which exceeded 700 basis points in May, decreased to 370 basis points yesterday.
The decrease in the risk of balance of payments crisis, the return to more traditional policies in the field of interest and budget, and the rapprochement with the West in foreign policy have been effective in the recent decline in Turkey’s credit risk premium.
However, in this period USA The rise in treasury bond interest rates erased some of the decline recorded in foreign borrowing costs with the decline in CDS.
GROWTH
In 2022, the Turkish economy grew by 5.6 percent compared to the previous year. The application of deep negative real interest rates and the spending of the country’s foreign exchange reserve resources in order to keep the wheels turning quickly before the election were effective in growth.
In the Medium Term Program (MTP) announced on September 6, the growth forecast was determined as 4.4 percent for 2023, 4 percent for 2024, 4.5 percent for 2025 and 5 percent for 2026.
Speaking at the meeting where the MTP was announced, President Tayyip Erdoğan stated that they would definitely not compromise on growth while fighting inflation and said that they aimed for an average growth of 4.5 percent in the 2024-2026 period.
In the inflation report announced today by CBRT President Gaye Erkan, the expectation that the “output gap” curve, which is critical for growth expectations, will remain in the negative region from the second quarter of 2024 to 2026 was included.
This indicates that growth will remain below potential in the period between 2024-2026.
Speaking to Sozcu.com.tr, former CBRT Chief Economist Hakan Kara stated that the output gap data announced by the CBRT today points to an economic growth expectation of approximately 2% in 2024.
CBRT’s output gap forecasts show that the bank expects significantly lower growth compared to the MTP in 2025 and 2026.
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