Election gifts from Erdogan
Turkish economy is growing – consumer spending is increasing
8/31/2023 4:22 p.m
Ahead of the election, the Turkish government is raising the minimum wage and spending record amounts on welfare. This drives private consumption – and the economy is growing. In view of the persistently high inflation, experts expect that the high growth of the second quarter will weaken in the second half of the year.
Despite the currency crisis and high inflation, the Turkish economy grew surprisingly strongly in the second quarter. From April to the end of June, gross domestic product (GDP) increased by 3.8 percent compared to the same period last year Statistics Office reported. Economists had only expected a smaller plus after an increase in output of 3.9 percent in the first quarter. Adjusted, the increase was 3.5 percent for the quarter and 5.0 percent for the year.
Increased social benefits from the government before the election in May, from which President Recep Tayyip Erdogan emerged victorious, contributed to the growth. In the past year and a half, she has doubled the minimum wage and spent record amounts on social assistance. As a result, the Turks consumed more, which boosted the economy. “Consumer spending has been exceptionally strong,” said economist William Jackson of Capital Economics. Before the election, the central bank had cut interest rates for a long time in order to stimulate growth, exports and investment with cheap money. Exports, on the other hand, fell by nine percent over the year. Imports climbed more than 20 percent.
Due to persistently high inflation and the drastic devaluation of the national currency, the lira, the central bank has now changed course. The key interest rate was raised from 8.5 to 25.0 percent. This is to combat inflation. The inflation rate is currently almost 48 percent and, according to economists’ forecasts, should have risen to more than 55 percent in August. “In the second half of the year, growth will weaken,” said economist Jackson in view of the increased borrowing costs. Analysts predict a plus of 2.9 percent for the year as a whole.