According to figures released on Monday the Turkish economy is in trouble. Turkey’s unemployment rate increased by 0.1 percentage point from month to month in October to 10.2%, while the seasonally adjusted measure of labor underutilization remained constant at 20.3%.
Due to the negative economic effects of pandemic measures, the labor under-utilisation metric has been on a downward trend since peaking at 29.6% in January 2021. The Turkish Statistical Institute’s report also revealed that the jobless rate for September remained at 10.1%. In October, the labor force participation rate increased to 53.5% from 53.1% in September.
In the money glut that followed 2008, the Turkish private sector took on a lot of debt. CBs were injecting cash into their economies, which decreased investors’ risk aversion and compelled them to invest money wherever they could (including frontier markets).
The Turkish economy, like the economies of all other emerging nations, has been significantly impacted by the FED’s decision and the slowdown in China’s GDP. Additionally, USD is currently much more expensive than EUR, and if you take into account that Turkish exporters buy raw materials with USD and sell the finished goods primarily to Euro-Zone countries, an increase in the USD/EUR parity decreased the value of exported goods despite an increase in their quantity.
EM companies’ balance sheets showed increasing borrowing as a result of this. After all, they too required money, and they required it now. Dollar was inexpensive, so they accepted it. Low oil and gas prices helped nations like Turkey, which relies on energy, keep their current account deficit in check.
The US, EU, and other developed economies are maturing right now, nevertheless. The rate of unemployment is at record lows, and one by one, the indicators of inflation started to materialize. The FED, ECB, BoE, BoJ, and other central banks will hike interest rates sooner or later. The cost of borrowing money and the reward of saving it are represented by interest rates.
You probably already know where this is going. By 2023, the FED will increase interest rates, increasing the cost of borrowing money. The Turkish private sector can no longer support its debt load. Investors begin to repatriate their funds to the US. As the dollar becomes scarcer in Turkey, the exchange rate increases.
The Turkish Central Bank (CB) decides to increase its own borrowing costs in order to make the Lira proportionally rare and valuable. Unfortunately, the President disagrees and threatens CB’s independence, which only serves to ruin everything. The investors decide to depart immediately as a result. The current account deficit is burdened more by rising oil prices, which raises the possibility of future inflation.