The Turkish government has struggled to tame inflation for the past year. Inflation sits at 70% despite an interest rate of 50% from Turkey’s central bank.

Why it matters: Turkey may be forced to sacrifice economic growth as it tries to lower inflation.

Yes, but: Turkey’s economy expanded faster than China as it clocked one of the world’s quickest growth rates of 5.7% in the first quarter of 2024 driven by strong domestic demand. Growth is expected to slow the rest of the year as the effects of the central bank’s aggressive monetary tightening kicks in.

Annual inflation is expected to hit around 75% this month, according to a Reuters poll and the country’s central bank. It is seen declining in the second half due to the tighter policies. Most foreign investors are now confident that price rises will decelerate rapidly by the end of 2024.

“Inflation relief now hinges on better coordination between monetary and fiscal policies—as well as President Recep Tayyip Erdogan’s patience if the economy goes into reverse,” reads an article from Bloomberg. “The main risk to this view is a policy reversal with the focus shifting from disinflation towards preserving growth momentum.”

What is contributing to inflation? Slowing consumer spending in the Turkish economy has been challenging because many Turks accelerated their purchases in anticipation of a currency slump after the local elections in March. Leading up to the municipal elections, the government raised the minimum wage by 50% at the start of the year to combat the high cost of living.

By the numbers: Customers in Turkey are paying an average of 38 days beyond terms, up from 33 days in September 2023, according to FCIB’s Credit & Collections Survey results.

• What they’re saying: “Turkish customers may misunderstand the terms of payment to their advantage, and inflation is soaring,” one Survey respondent wrote.
• “I suggest backing trade with either a trade credit policy or letter of credit as the country is going through geopolitical issues,” another credit manager explained.

What’s next: The FCIB Credit and Collections Survey is now open. It covers China, Iran, Mexico and Spain.