Turkey Economic Monitor, October 2019 : Charting a New Course
The Turkish economy has experienced major external adjustments over the past 12 months, including declining current account imbalances, reduced external debt of banks, and a recovery in portfolio flows. These have lessened the external vulnerabilit...
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| Format: | Economic & Sector Work |
| Language: | English |
| Published: |
Washington, DC: World Bank
2019
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| Online Access: | http://documents.worldbank.org/curated/en/429091572623015810/Turkey-Economic-Monitor-Charting-a-New-Course http://hdl.handle.net/10986/32634 |
| Summary: | The Turkish economy has experienced
major external adjustments over the past 12 months,
including declining current account imbalances, reduced
external debt of banks, and a recovery in portfolio flows.
These have lessened the external vulnerabilities that had
accumulated in the run up to the August 2018 currency shock.
These adjustments have reduced the country's external
financing needs and contributed to a more stable Lira,
notwithstanding bouts of currency volatility in 2019 Q2 and
Q3. The adjustments were aided by somewhat agile policy
responses and more favorable (than expected) global monetary
conditions. Even so, foreign exchange reserves have gotten
eroded over the past two years, exposing Turkey to external
market pressure. The real sector remains deeply affected by
the persistence of macro-financial vulnerabilities.
Investment significantly decreased – contracting for four
quarters in a row (till 2019 Q2) – whilst industrial
production points to a weak turnaround. The gradual recovery
from recession in 2018 H2 has been fueled by a pickup in
private consumption and net external demand. The decline in
inflation has begun, after exchange rate pass-through and
episodes of loss of confidence in the Lira had sharply
increased consumer prices, averaging 17 percent in the first
three quarters of 2019. A gradual decline in producer prices
since October 2018 has helped close the gap between PPI and
CPI inflation and reduced pass-through pressures on consumer
prices. Stagnating output levels, rising costs of
production, and high consumer prices have led to significant
job losses and falling real wages. Turkey's economy
lost around 840 thousand jobs from May 2018 to May 2019,
amounting to 2.9 percent of total employment. The
unemployment rate increased from 10.6 percent to 14 percent
between May 2018 and May 2019, with the youth seeing a jump
in their unemployment rate from 19.6 to 25.6 percent.
Average real wages declined by 2.6 percent between 2017 and
2018. The rise in unemployment and decline in real wages was
experienced by workers across the skills and education
spectrums. Poorer households have been the most impacted
because many low-income workers are employed in construction
and agriculture—the sectors that saw the biggest decline in
jobs. Moreover, the long-term impact of a drop in real wages
is significantly greater for the poorest households since
they have limited coping mechanisms. |
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