11 percent growth in 2021 – raise your hand: Will 2022 growth turn negative?

The Turkish economy broke a new growth record in 2021. It achieved 11% full-year growth, reaching the highest figure of the last 10 years. GDP increased by 42.8% in 2021 compared to the previous year and reached 7.2 trillion TL. This figure, which corresponds to 802.9 billion dollars, has increased the per capita income to 9,539 dollars. Only the last quarter growth is 9.1%.

One of the most controversial issues in the growth data is that the difference between official inflation and inflation, which is thought to be real, may have inflated the real growth figure; The fact that keeping the TL stable by artificial means may have resulted in an increase in income in dollar terms.

The base year effect, the great collapse in growth during the pandemic period are among the primary reasons for the high 2021 growth figures. However, it is important that the growth achieved in 4Q21 compared to 3Q21 was 1.5%. However, it should be remarkable that it fell below the strong figure of 2.8% in 3Q21 compared to the previous quarter. Especially within the framework of 2022 growth expectations.

While it is calculated that the growth will fall to the 3-3.5 percent band in 2022, even under normal conditions, there is now the fact that the negative reflections of the war shock on the 2022 growth performance will be inevitable.

Among the components of growth, the consumption level of households and the positive contribution of export-based effects, as well as the contraction in agriculture, are at the forefront. On the other hand, the fact that the trend does not change in the development of the share of growth performance against the working class is another matter of discussion.

Contraction in agriculture, strong outlook in industry

On the side of growth by production method, agriculture The 2.16% contraction of the sector in 2021 is the explanation for the high course of food price inflation. The scattered structure of agricultural production and the sharply increasing costs rather than the effects of climate change indicate that agricultural production carries a similar risk in 2022.

in industry The overall contribution of the observed 16.6% growth is 3.26 points. Behind the 17.2% increase in the manufacturing industry, its sub-item, is the high foreign demand that boosts exports.

Build The situation for the sector is not encouraging. Even though the contraction is 0.95% in the whole year, the loss of momentum is masked by the base year effect and is more than meets the eye.

The 21.12% growth observed in the services sector is not a surprise, the easing of the pandemic bans with vaccination benefited the services sector. This trend seems to continue in 2022, despite the curbing of rising costs.

looks interesting, finance sector to end 2021 with a contraction of 8.96%. The important reason is that interest rate cuts could not be made until the last quarter due to inflation and the level of TL. In 2022, however, the fact that interest rate cuts do not reflect on loan rates, on the contrary, creates an increasing effect, which means the continuation of this trend.

The household is consuming

Growth by spending On the other hand, the 15.1% increase in household consumption is among the factors that most positively affect growth, when foreign and domestic demand are combined. However, with an unsustainable monetary policy implementation, the TL shock observed in the last quarter and its reflection especially in 1Q22, the sudden excessive inflation and war conditions are at a level that will take the breath of the households in 2022.

Contribution of net foreign trade is large, 2022 will not be the same

Government consumption (especially in investments) contracted in the first and last quarters of last year, but ended the year with a total growth of 2.1%. Exports became the bright star of 2021 and with 24.9% growth, it more than offset the 1.99% increase in imports. In total, the contribution of net foreign trade to growth was 4.86 points. In 2022 we will watch this trend reverse. Likewise, the replenishment of stocks that melted in 2021 and the energy shock added to the cost increases will increase imports sharply. Exports, on the other hand, will be on the way to return to their normal course.

The share of the workforce in the added value is 25.8%: Sharp deterioration in income distribution

In 2021, “the share of labor payments in gross value added” is 30.2%, but in the last quarter this rate is 25.8%. If it is remembered that this level was 32% before the pandemic, it becomes clearer why the growth was not felt by the crowds. The process of pandemic and TL shocks in the Turkish economy shows that there is a deterioration in income distribution, accompanied by the economic policies implemented. This is the main reason why the ruling parties lost their votes.

The record year gave way to a difficult 2022

The continuation of the contraction in the agricultural sector, the slowdown in the manufacturing and services industry, as well as the negative contribution of net foreign trade will bring the 2022 growth figure down sharply. It is not possible for households to increase their consumption at the level of 2021, due to increasing inflation and lagging income, as well as the negative real interest policy accompanying the inflation that continues to rise.

Growth would have regressed around 3.5% under normal conditions, which is not a beneficial level for unemployment considering the population of Turkey.

Turkey’s future impact of the Ukraine war on tourism, construction sector, banks, agriculture and foreign trade has revealed more downside risks in its 2022 growth performance, with energy price shock being the top priority. It is still too early to renew the forecast, as it is not clear what stage the acute part of the War will reach. However, the potential of Putin’s aggression to change the world balance and the severity of the economic sanctions against Russia show that the economic shock in 2022 will continue for a while. Although growth is not expected to be negative, it is possible that it will weaken very much for 2022. The deepening of the shock, on the other hand, has the potential to rapidly reduce the growth to negative through the TL shock, although it is less likely for now.


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