Consumer prices in Turkey increased by more than 24% over the year. Producer inflation was almost twice as high at that time. In addition, indicators predicting the economic situation relentlessly suggest a recession. Most of Ankara's problems are the result of a completely irresponsible economic policy aimed at immediate stimulation of the economic situation through ineffective infrastructural investments," writes Marcin Lipka, Conotoxia Senior Analyst.
24.52% - this is the size of the enormous increase, that was observed on consumer inflation (CPI) in Turkey as compared to September last year. The great size of this value can be seen in the comparison of data on inflation in developed countries or in the European Union, where it fluctuates around 2% on average.
According to the Turkish Statistics Institute (TUIK), prices of food (27.7% y/y), transport (36.6% y/y), as well as property equipment or renovations (37.2% y/y) increased faster than the overall inflation rate. However, this is probably not the end of the rises due to the gigantic increase in producer prices (PPI).
Gas and electricity went up by more than 70%
The producer price index rose by 46.15% y/y in September and by nearly 11% y/y in comparison with August alone. Prices in manufacturing increased by 44.77% y/y, and in the case of gas and electricity - by 71.88% y/y.
Not only is Turkey facing huge inflation, but also the economic situation is literally fading before our eyes. The PMI index for the industrial sector fell to 42.7 points in September, according to a survey by Markit IHS and the Istanbul Chamber of Commerce. Excluding the short period during the peak of the financial crisis at the turn of 2008/2009, these are the worst readings in the whole history of this index. This data may also suggest that industrial production in Turkey will even shrink by 8% y/y.
When asked to comment on inflation figures, Finance and Treasury Minister Berat Albayrak, and privately President Recep Erdogan's son-in-law, said that "speculative price fixing has affected inflation". According to Bloomberg, the minister also added that "the worst is behind us" and the government will reveal the plan "to fight inflation next week".
However, a lot suggests that the worst is still ahead of Turkey, no plan will protect Ankara from recession and now it is the time when the citizens will start paying for the unrealistic dreams of the Erdogan government.
The world's largest airport and 28 other airports
The opening of the third airport near Istanbul is expected in October. In the first phase it is to have a capacity of 90 million passengers, and after further expansion, it will probably become the largest airport in the world with a capacity of 200 million passengers. The "Istanbul New Airport Economic Impact Analysis" shows that the facility will offer six runways and the possibility of parking 500 planes at the same time, with a construction cost that will exceed 10 billion EUR.
This is nothing compared to all the infrastructural expenses of the Erdogan's team. Since the election of the current president as prime minister in 2003, 28 airports have already been built," wrote The Economist in April. The world's leading economic magazine also pointed out that Turkey plans to spend 325 billion USD on infrastructure projects related to the expansion of road, tunnel, bridge networks and even to build a 45 km long canal parallel to the Bosporus Strait in the next five years.
A big part of these projects, if not the majority, is unlikely to come true as Turkey will quickly slip into recession.
Tough times ahead
An overinvested economy with high debt denominated in foreign currency is entering a period of high inflation. This means problems for many of the companies involved in this infrastructure boom. A reduction in public investment, in turn, will result in an increase in unemployment, lower revenues for companies and a decrease in consumption.
Moreover, the central bank will probably have to raise interest rates in order to fight inflation and attract foreign capital. The Turkish economy needs it because it suffers from a huge current account deficit, which is largely the result of inefficient infrastructure spending.
A consensus published by Bloomberg economists assumes that Turkey will enter recession in the fourth quarter. IHS Markit expects the GDP to contract by as much as 3.7% y/y between October and December. The opening of the airport near Istanbul, planned for this month, will not be seen as a success but as a monument to the defeat of President Erdogan's team.