Stagflation may be round the corner - columnist

Former Economy Minister Ali Babacan and ex-Central Bank Governor Erdem Basci were once criticized by politicians and industrialists clamouring for more economic growth. They were accused of defending high interest rates and getting the country into trouble.

Now the very people who criticized Babacan and Basci may have brought Turkey to the brink of staglation – a period of persistently high inflation and low demand – as interest rates rise, price rises accelerate and consumer demand begins to wane.

Turkey hasn’t had such a period of persistently high inflation since the financial crisis. Increases in industrial production have been lagging behind demand for goods and services, so the government is having to finance the current account deficit, brought on by demand for imports, at increasingly high rates of interest as foreign investment declines and opportunities for borrowing abroad become fewer, says Ibrahim Kahveci, a columnist for the pro-government Karar website.  

Economy Minister Nihat Zeybekci laid it out for us when he said: “we don’t want to reduce inflation by putting a stop to high demand.”

Therefore we can increase production. Great but they’re already working three shifts in many sectors. Capacity utilization has reached more than 80 percent. So, what’s left is to increase investment. But the state of emergency means there hasn’t been any. We may have the best incentives in the world, but forget about an increase in investment, it’s in decline.”

How much longer can Turkey continue with a growth model that stresses consumption demand? What the government should have done was focus its expansive fiscal policy on production, not consumption, Kahveci said.

Read the article in Turkish here: