EBSO/Matress Makers: The Ongoing Deepening Slowdown in the Economy

Foreks - EBSO Board Chairman Ender Yorgancılar stated, "Increasing managed and directed prices in line with inflation targets, not acting early and rapidly on interest rate cuts, gradually removing the pressure on the exchange rate over time, and protecting employment and exports will also contribute to the improvement of the economy."

Evaluating the third quarter growth figures, EBSO Board Chairman Ender Yorgancılar highlighted, "A fierce battle is being waged against inflation within the realm of monetary policy. Partial successes have also been achieved. As we entered 2024 with a consumer price index inflation rate of 64.8%, this rate has been reduced to 48.6% by the end of October. During this process, a significant improvement in the current account deficit has occurred due to the slowdown of the economy; the current account deficit, which was $36.1 billion in the January-September period of last year, has decreased to $5.2 billion in the same period this year. We are facing the expected adverse side effects of such results."

Yorgancılar mentioned that the economy grew by 5.3% in the first quarter, 2.4% in the second quarter, and 2.1% in the third quarter, stating, "The slight contraction of 0.2% in growth rates in the second and third quarters compared to the previous quarter is noteworthy. According to these data, there is a possibility of a more pronounced slowdown or even contraction in the economy in the fourth quarter. Therefore, there is an ongoing deepening slowdown in the economy."

Pointing to significant results on a sectoral and social level, Yorgancılar remarked, "The policy framework summarized as high-interest-low-exchange rate and the declining real purchasing power of broad masses is producing significant social impacts alongside the economy. From a sectoral perspective, it is observed that the industry, which is the locomotive sector of our country, is the sector that has paid the highest price both in the first half of the year and in the third quarter. To ensure that the difficulties faced by broad social groups and the industrial sector do not go in vain, the fight against inflation must be resolutely maintained with the support of fiscal policy. After all, we have no choice but to succeed in combating inflation."

In his assessment of the details of the growth figures, President Yorgancılar stated, "In the third quarter of the year, it is seen that the construction sector (9.2%) and the agriculture sector significantly contributed to production growth, while private consumption (3.1%) and the export of goods and services (0.8%) were the main drivers in terms of expenditures. The 0.8% decline in investments, while expected, has been a concerning development. The industrial sector grew by 4.2% in the first quarter of this year but contracted by 1.6% in the second quarter and 2.2% in the third quarter. Thus, the sector contracted by 0.6% over the nine-month period of the year. Consequently, the performance of the industrial sector in the second and third quarters of 2024 is quite worrisome. There is also a high probability of the sector contracting in the last quarter. Therefore, it seems that our sector will experience the worst performance in the last five years in 2024, following the slowdown in 2022 and 2023."

Yorgancılar added that the industrial sector continues to create employment, stating, "According to TÜİK data, real gross wages in the industrial sector increased by 12.9% in the third quarter compared to the same period last year, while labor productivity per person declined by 2.5%. Thus, labor costs in the sector have risen significantly. Nevertheless, employment in the sector increased by only 124,000 people, which is just 1.9%. Therefore, industrialists continue to create new employment in the sector that has the most permanent jobs. Moreover, in the third quarter, despite exchange rate increases remaining below costs, there was a 4.5% increase in exports from the manufacturing sector. Thus, despite the challenging conditions in the third quarter, the industrial sector exceeded expectations."

Drawing attention to developments in investments, Yorgancılar noted, "Investments grew by 9.0% in the first quarter and 0.8% in the second quarter, but contracted by 0.8% in the third quarter. Additionally, while construction investments grew by 9.4% in the third quarter, there was a significant contraction of 8.6% in machinery and equipment investments. Thus, after a significant decline in machinery and equipment investments in the second quarter (5.4%), there was another major decrease in the third quarter. This development indicates the necessity of developing a new approach to investment incentives within the framework of conjunctural conditions to be prepared for future needs."

Yorgancılar emphasized that Turkey is going through a difficult process composed of structural problems and policy preferences, stating, "We need a strong economic program that synthesizes the knowledge of the future with the experiences of the past, taking into account all sectors and social segments simultaneously and incorporating the potential reflections of a second Trump era in the global economy. Therefore, the effective activation of the Economic and Social Council and the policies that will be developed through common sense, maintaining the balance of benefits and burdens, will be a significant step towards securing support from all segments. Increasing managed and directed prices in line with the inflation target, not acting early and rapidly on interest rate cuts, gradually removing the pressure on the exchange rate, and protecting employment and exports will also contribute to the improvement of the economy."