Prof. Dr. Hayri Kozanoğlu's first quarter assessment of the economy

Evaluating the first quarter of 2025 in the Turkish economy, Altınbaş University Faculty Member Prof. Dr. Hayri Kozanoğlu said that although inflation remains high, it has slowed down relatively and that it is parked in the “new normal” where no sharp movements are seen.

Prof. Dr. Kozanoğlu stated that the growth projected at 4% in the Medium Term Program for 2024 was 3.2% and that inflation, which was estimated at 33%, remained far from expectations with 44.4%. Kozanoğlu said, “This trend can also be observed in labor force data; while the headline unemployment rate was announced at a moderate rate of 8.4%, the idle labor force rate reached 28.1%. This data includes those who have given up hope of finding a job, but say they will work if they find one, as well as those who want to work full-time but are only employed in part-time, temporary jobs. It is clear that people in this situation are struggling to make ends meet at a low standard of living, if not starving.”

Prof. Dr. Kozanoğlu added that although the Policy Rate has decreased from 50% to 42.5%, the rate is still high enough to cut investment and consumption trends and said, “Moreover, with the latest data, commercial loan interest rates are around 50% and consumer loan interest rates are around 64%. Because the inflation expectations of individuals and firms are much higher than the Central Bank's 2025 year-end inflation forecast, which was revised to 24%. Last time, the real sector expected year-end inflation of 41.9% and households 59.2% for 2025. As such, individuals do not hesitate to spend the money they have on consumption, and if they do not have money on the sidelines, they spend it by borrowing. Interest rates of around 50% do not deter firms from borrowing for working capital requirements or investments.”

Stating that the data for the first quarter of 2025 also showed neither hot nor cold, but lukewarm signs in the economy, Kozanoğlu continued as follows:

“Industrial production, which showed a stir in the last quarter of 2024, decreased by 2.3% in January 2025 compared to the previous month. While the current account deficit increased to 3.8% in the same month and the 12-month deficit increased to 11.5 billion dollars, it is slightly higher than 2024, but it is in a trend that will not strain the CBRT reserves much due to the slow growth pace. One of the most striking data in foreign trade is that imports of consumer goods have not slowed down. This is related to the continued consumption appetite of the wealthy in a low real exchange rate environment. In any case, macro practices yield different results for different segments of society. High interest rates According to a CBRT survey, high income groups have increased their savings and turned to TL deposits, while the expenditures of low-income people, who do not have the opportunity to save, are not affected by high interest rates”.

Prof. Dr. Hayri Kozanoğlu emphasized that one of the most talked about data in the society recently was the announcement that the per capita income increased to 15 thousand 463 dollars and said, “Naturally, the majority of citizens expressed their doubts, ‘I have never seen 15 thousand 463 dollars together in my life, how did this happen?’. The fact that the labor of migrant workers is not included in the national income and that inflation is higher than the official figures may have affected this result to some extent. But the main reason is the limited depreciation of the Turkish lira against foreign currencies and the increase in the foreign currency equivalent of the income, which is mostly below inflation.”