Renowned economist Mahfi Eğilmez warned that while borrowing abroad remains profitable as long as the exchange rate stays stable, the real sector in Türkiye has taken on serious currency risks. Speaking on CNBC-e’s “4’te Ekonomi” program, Eğilmez highlighted key economic developments and potential risks for the country.
Key Takeaways from Mahfi Eğilmez’s Analysis
- Current Account Deficit Rising: Compared to last year, Türkiye’s current account deficit has significantly increased. This is expected as the economy enters a growth phase. While exports were previously leading, imports have now surged, driving a 28% increase in the trade deficit.
- Foreign Investments on the Rise: Direct investments in Türkiye have grown by 65%, while Turkish investments abroad have jumped by 265%.
- Carry Trade & Borrowing Trends: High interest rates and a relatively stable exchange rate have fueled a record surge in corporate and banking sector borrowing. However, banks are avoiding exchange rate risks, while the real sector is heavily exposed. Eğilmez warned: “This can be sustained for a while, but if things turn around, it can collapse quickly—like walking on a knife’s edge.”
- Capital Flight & Reserves: Last year, Türkiye recorded a $454 million surplus in net errors and omissions, but this year, $1.6 billion has exited the economy. Despite this, reserves have increased.
Industrial Production Faces Further Decline
- Temporary Growth Was an “Economic Dead Cat Bounce”: While industrial production rose 5% in recent months, the trend has reversed. Eğilmez compared the previous increase to a “dead cat bounce”—a temporary uptick before further decline.
- Concerns Among Industrialists: After meeting with business leaders, Eğilmez observed greater-than-expected concerns about the future. He stated: “Industrialists have serious concerns about 2025. I expect the decline in production to continue.”
- Skilled Labor Costs Surging: Wage expectations are exceeding forecasts. While minimum wages and pensions remain low, high-skilled workers are demanding much higher salaries. Eğilmez shared an example: “A factory owner told me, ‘I can’t find a welder for less than 100,000 TL net salary, and even at that wage, nobody is interested.’ “
Interest Rates, Inflation, and Global Impacts
- High Interest Rates Hurting Industry: With interest rates rising to 60-65%, industrialists are struggling. If inflation is not controlled, economic stabilization may be difficult.
- U.S. Inflation Trends & Fed Rate Cuts: Inflation is falling in the U.S., leading to expectations of three interest rate cuts this year by the Federal Reserve (Fed). This benefits the stock market, as lower interest rates encourage investors to shift from fixed-income assets to equities.
- Euro Gains Favor Türkiye: Since Türkiye earns revenues in euros but incurs costs in dollars, a stronger euro benefits the economy. Currently, 40-45% of Türkiye’s exports go to Europe, making a higher euro-dollar exchange rate advantageous.
Eğilmez’s View on Pension Increases
- Opposes Holiday Bonuses for Retirees: Eğilmez criticized the current pension bonus system, advocating instead for permanent increases in monthly pensions that are adjusted for inflation. “I don’t support giving retirees holiday bonuses. If the goal is to help pensioners, then pensions should be seriously increased and indexed to inflation.”
Conclusion
Mahfi Eğilmez’s insights highlight the delicate balance in Türkiye’s economy—with rising risks in the real sector, industrial concerns, and financial market dynamics shaping the country’s economic outlook. While some factors, like the strong euro, are beneficial, the current borrowing strategy and inflationary pressures pose long-term challenges.
Source: CNBC-e/ Prepared by: İlayda Gök
