Our recently released Turkey Market Review provides an in-depth analysis on Turkey’s economy and assesses major market trends impacting multinational companies. Turkey’s increasingly unpredictable outlook is challenging MNCs’ 2022 strategies.

Turkey will see growth ease in 2022, as an 80% weaker exchange rate, 50% inflation, and an uncertainty in economic policymaking dampen growth. The overall outlook is dependent on the trajectory of the exchange rate, so MNCs should regularly update their assumptions and targets this year. On a positive note, Turkey can expect tourism to grow, but we expect consumers to tighten their wallets due to a volatile lira and rising inflation.

FX Outlook

The Turkish lira depreciated more than 70% throughout 2021, and the outlook faces a high degree of uncertainty. Policy unpredictability and potential political tensions in 2022 are adding to the severity of the Turkish lira volatility. Positive policy moves could appreciate the USD:TRY rate around 20% to TRY 10.8 to USD. Any significant loss in confidence, however, could depreciate the Lira around 80% reach TRY 23 to USD. We expect the lira to fluctuate around TRY 13 – 16 through this year, with the possibility that it could reach TRY 18 if risk events occur.

The rate hikes coming from the US Federal Reserve will cause US dollar deposits to receive higher rates, and therefore attract more Turkish resident’s deposit. The rate hikes could very well cause more Turkish residents to sell off the lira.

Inflation Outlook

Turkey’s economy is facing high inflation in 2022, due in no small part to the volatility of the lira. We believe the official figure will hover around 30%, but our alternative figure suggests a rate closer to 55% of average price growth.

Costs for shipping and logistics likely peaked in 2021, but we expect them to remain high for at least for the first half of the year, with costs of shipping from Europe, and especially Asia adding to business costs. The unpredictable economic policy and the fear of political risks has lowered confidence in the economy, causing residents to stockpile goods, further fueling inflation.

Some factors causing inflation, include:

  • High shipping and logistics costs
  • High energy and global commodity prices
  • Ongoing lira depreciation

Because of inflation, we’re seeing entrenched expectations and high nominal, but limited real wages.

Scenario Outlooks in 2022

In our market review, we analyze four potential scenarios for Turkey’s economy in 2022. Although this doesn’t include every scenario, we have some clear likelihoods. An improving trade balance is supporting GDP in most scenarios; however, investments and consumption growth could vary widely.

  1. Scenario 1, likelihood 20%: TRY stability amid mediocre growth: Absence of a lira shock allows the economy to stabilize and start 2023 on better footing
  2. Scenario 2, likelihood 15%: Minimal recovery amid TRY Appreciation: Significant policy change or confidence improvement is needed to appreciate the lira
  3. Scenario 3 (our base case), likelihood 55%: TRY Depreciation keeps growth muted: Numerous events throughout 2022 and authorities’ policy signals point to more depreciation risk in 2022
  4. Scenario 4, likelihood 10%: TRY freefall brings in stagflation: An extremely negative scenario of a TRY crash–triggered recession remains the lowest-likelihood scenario

Find out more

As you monitor behavior and build scenarios, FrontierView can help you with process/planning, understand how to play, where to play, and how to win. It’s important you are proactive in 2022. You should adjust your product portfolio, review pricing and talent management strategies, maintain heavy marketing investments, and monitor accounts receivable risk to protect your market position until Turkey’s economy can recover in 2023.

Start a free trial today and read the full Turkey Market Review.

TRY depreciation continues amid weak economic performance.

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