Home / Posts / How does Turkey's economy continue to grow despite raging inflation?

August 10, 2022 | Viewed: 1084

How does Turkey's economy continue to grow despite raging inflation?

The British magazine The Economist published an article on its website about the growth of the Turkish economy as a kind of mystery that is hard to believe, but the facts say exactly that. We are publishing a translation of some excerpts of the article.

“It may seem to outsiders that the story of a thriving Turkish business is hard to believe. Since 2018, the country has been limping from one currency crisis to another, foreign investors have got rid of Turkish bonds and stocks, the lira has plummeted, and inflation has jumped to almost 80%. Nevertheless, the economy continues to develop in some way.

The sustainability of Turkey’s real economy is a bit of a mystery. Turkey is one of the few major economies that have managed to demonstrate at least some growth in 2020. In 2021, Turkey’s GDP grew by 11%. Industrial production increased by 9.1% year-on-year. Even experienced businessmen were caught off guard.

In the last months of 2021, interest rates were reduced by five percentage points, to 14%. Lyra was under pressure again. Since then, inflation has risen from about 20% to almost 80%.

In the face of such chaos, it is remarkable that the economy continues to develop as well as before. This is largely the result of Turkey’s numerous commercial advantages. It has a large domestic market with 85 million consumers, mostly young, and has long been a transit point for trade between East and west. The country’s business culture has deep roots. The proportion of the population aspiring to become entrepreneurs is high by international standards.

Some European companies are now considering Turkey as a potential alternative to China as they seek to reduce and diversify their supply chains. Last year, ikea announced that it would move the production of some of its furniture from Asia to Turkey. Clothing firm Hugo Boss has said it will increase the capacity of its Izmir factory to reduce dependence on Asia. But Turkey’s monetary instability, as well as deteriorating governance and the rule of law, are an obstacle to a new boom in foreign investment.

Curbing inflation would be a big and painful job, but Turkey’s experience after 2001 shows that with the right policy it can be done and after that the level of foreign investment can recover.”