HomeBussinessHere's why businesses in Turkey are more optimistic about inflation

Here’s why businesses in Turkey are more optimistic about inflation

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Following months of sky-high inflation, Turkey’s January Business Confidence report points towards a slowly improving situation.

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The Turkish Business Confidence numbers for January 2024 were released on Thursday morning, clocking in at 100.9 this month, above the one-year low of 99.1 seen in December. This was mainly due to finished goods stocks rising from 95.2 in the previous month, to 95.3 in January. Total orders also inched up to 85.1 from 83.8.

To note, a score above 100 indicates an optimistic outlook to the economic activities while below 100 points to a pessimistic outlook.

Furthermore, production expectations for the next three months are also looking up, coming in at 108.6, a step up from December’s 102.5. Inflation expectations for the next year cooled, down to 55 from 58.8.

However, total employment expectations for the next three months were still gloomy, sliding to 107.2, from 108.8. The gauge for general business situation also slipped to 90.4 from 93.5 in December.

Could Turkey’s inflation be coming down soon?

Turkey has been facing high double-digit inflation in the last several months, mainly due to the current Prime Minister, Recep Tayyip Erdogan’s unorthodox monetary policy stance for a long time. The Prime Minister believed that keeping interest rates low would help tame inflation, in direct contrast to most of the world’s other central bank leaders.

However, once it became overwhelmingly evident that inflation was on a rapid upward trajectory, Erdogan quickly did a U-turn on this policy, which was also helped by bringing the current central bank governor, Hafize Gaye Erkan.

As Turkish economist Mustafa Sonmez highlighted to Foreign Policy, “Many household incomes are insufficient against inflation- impoverishment is now one of our biggest problems. We’re seeing an unusual inflation climb and people are worried and disappointed.”

However, with interest rates now being sharply pulled up, to make up for months of monetary policy loosening, Turkey’s inflation expectations are finally seeing a silver lining. Although it was still extremely high at 64.8 per cent in December, it was just below analyst estimates of 65.1 per cent.

France’s manufacturing sector still lacklustre

France’s business confidence report for January was also revealed, still remaining stable at 99, the same as December. However, this was below market consensus figures of 100, as France’s manufacturing sector still struggled somewhat.

This was mainly due to slower economic growth and decreased domestic and overseas demand, which in turn led to lower sales, as well as several orders being postponed. Investment and intermediate goods are seen to be the most impacted by these conditions, however, consumer goods still seem to be resilient.

With demand and sales falling, several producers are also cutting capacity and letting go of an increasing number of workers, thus putting upward pressure on unemployment levels too. Manufacturers are also more pessimistic in the last few months, given the geopolitical turmoil the world is facing at the moment.

This is especially due to the ongoing Red Sea conflicts, which are being closely watched by manufacturers over the world, for any impact on input goods or shipping prices. A lack of new orders and export business has also been putting similar pressure on France’s services sector recently.

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