Following six consecutive quarters of high growth rates, Turkey’s economy appears to be coursing toward stagnation and, ultimately, contraction, as all leading indicators have been pointing to a slowdown since July. For decades, Turkey has had one of the world’s most unfair income distributions. The working classes have taken the hardest blow during times of economic turmoil, responding by voting against the ruling party in the first elections.
Though Turks went to the polls as recently as June, economic grievances did not figure prominently in the votes of roughly half of the electorate, which backed President Recep Tayyip Erdogan and his Justice and Development Party (AKP). Yet, popular discontent has grown fast since then amid surging inflation, company bankruptcies, loan repayment woes and uncertainty over what the country’s economic future holds. Ankara’s extensive control of the media and judiciary — and the more oppressive nature of the presidential system that took effect in June — are discouraging street protests and other public expressions of discontent, but an undercurrent of resentment is clearly growing.
The muttering in low-income groups is rising primarily over the flurry of price hikes that Turks have come to encounter at the markets. Year-on-year consumer inflation hit nearly 18% in August, becoming increasingly ossified in a way that Turkey has not witnessed in many years.
Producer inflation is even higher, standing at 32%, which is an omen that consumer prices could rise even further in the coming months. Retailers say they have done their best to minimize the effect of producer hikes on consumer prices, but note they have reached the limit, reinforcing expectations that inflation would hit 20% by the year-end.
Among emerging economies, Turkey’s inflation is comparable only to that of Argentina, which is already under the watch of the International Monetary Fund. While prices soar, few Turks can hope for pay hikes matching the inflation rate. Out of the 19 million wage earners who make up 70% of the labor force, only about 3 million public employees enjoy some inflation-related pay adjustments, in addition to about 10 million pensioners. For the remaining 16 million wage earners in the private sector, such an adjustment facility does not exist. Moreover, only about 1 million of them are unionized, standing a chance of some organized effort to secure pay hikes. The overwhelming majority of 15 million wage earners are on their own.
Worse, more than 60% of wage earners work for the minimum wage of 1,600 Turkish liras or even less, according to the micro data of labor statistics by the Turkish Statistical Institute (TUIK). This is equivalent to $246, based on the dollar’s average price of 6.5 liras this month — a 42% decrease from the $426 that the minimum wage was worth at the beginning of the year.
According to the TUIK, the average home rent in Turkey is 1,000 liras, including related fees. Hence, a wage earner’s family needs the equivalent of at least two minimum wages to scratch along or second jobs for extra income or other forms of support. But even this is not enough to protect their purchasing power against 18% inflation, meaning that those families are growing relatively poorer.
The gloomy picture is now compounded by the risk of losing jobs. The growth rate is falling fast in sectors such as construction, agriculture, tourism and services, where minimum wage earners are heavily employed. Despite the 5.2% overall growth rate in the second quarter announced this week, the agricultural sector regressed by 1.5%, and the construction sector grew only 0.8%. The momentum loss in the manufacturing industry was also significant. Official figures for the third quarter are not yet available, but the pace of growth is known to be sharply falling.
Non-agricultural unemployment currently stands at more than 12.5%, and it will hardly be a surprise if the figure reaches 14-15% when the figures for August and September are released. The real fears, however, are about the fourth quarter, when a sharper contraction and layoffs are expected. For many families, losing jobs would mean an intolerable situation.
On top of all those risks, low-income groups are grappling with debt woes stemming from a loan bonanza that Turks had until several years ago as the banking sector was able to borrow for cheap from abroad. A significant increase in credit card use and consumer loans has saddled Turkish households with a hefty debt burden. According to figures by the Turkish Banks Association, the credit card and loan debt of households stands at some 567 billion Turkish liras ($92.5 billion). Setting aside the 244-billion-lira debt linked to car and home loans (which are presumed to belong to the more well-off), the debt in credit cards and personal finance loans — which is generally considered to belong to lower income groups — emerges as 323 billion liras ($52.7 billion).
Non-performing loans are already close to 6%, and litigations are on the rise. For both debtors and banks, the repayment problem raises the grave prospect of sequestration, which could lead many to lose homes, cars and even domestic appliances.
In sum, although the crisis has only reared its head, low-income groups are already under severe strain. It is important to note that those groups represent an important segment in the AKP electorate. How long their credit to the AKP will last or how much patience they will show is hard to predict. Yet, local elections are looming in March 2019. Will the voters punish the AKP at the ballot boxes? Could the government temper the crisis until March? These are a few of the questions that will hover in the coming months.
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