07.06.2021

TSKB Economic Research publishes its report, “Setting Sail for a Greener World in the Pandemic Storm”

TSKB Economic Research published its 3rd report in which it shared important evaluations of the effects of the COVID-19 pandemic, the impact of which has been felt across the country and the whole world, with a focus on macroeconomics. While the report entitled “Setting Sail for a Greener World in the Pandemic Storm” alludes to the signs of recovery in our country and the world, after the steps taken within the scope of tackling the pandemic, it is understood that climate is a permanent fixture in the political agenda and can be treated as an accelerator of the structural transformation.

TSKB Economic Research continues to offer value-added solutions with its research activities directed to Turkey’s sustainable development, and published its third report entitled “Setting Sail for a Greener World in the Pandemic Storm”, which discusses the effects of the COVID-19 pandemic with a focus on macroeconomics. The report reflects that the economy is demonstrating signs of recovery with the worldwide stimulative policies aimed at tackling the pandemic and the accelerated vaccination rollout, while drawing attention to the inequalities and uncertainties that need to be overcome while acknowledging the important steps that had been taken during the recovery process.

The report, prepared by Feridun Tur, Şakir Turan, Cihan Urhan and Cem Avcıoğlu from the TSKB Economic Research Department, underlines that on the road to a greener world, international development financing institutions can contribute to Turkey’s structural transformation and accelerate the country’s green transformation.

The Turkish economy has achieved a rapid recovery in the post-pandemic period, while the slowdown in economic activity was limited, despite the lockdown restrictions imposed due to the pandemic. Inflationary tendencies have emerged in the uneven recovery in the world, negatively affecting Turkey, with these uncertainties limiting the room for manoeuvre in terms of economic policies. While the report suggests that domestic demand needs to cool down for a period of time to achieve a recovery in the macroeconomic balances, it emphasises the importance of strengthening macroeconomic policy measures with development policies.

International development financing institutions in a position to accelerate the green transformation

The global climate agenda is thought to have the potential to impact Turkey in fields such as transformation in energy production, R&D processes focused on resource productivity, agriculture and food systems, the circular economy and a carbon border tax. The report states that the steps to be taken in this field could bring about a transformation and that climate policies could serve as a catalyst in the country’s structural transformation. It is underlined that this transformation, which is required in the orientation to a greener world, will provide a contribution both in the global efforts to tackle climate change and Turkey’s structural transformation, with the report highlighting that Turkey’s green transformation can be accelerated with the targeted funding that international development financing institutions can provide.

A sense of responsibility towards climate crisis could enhance Turkey’s work environment

In the report’s introduction, Burcu Ünüvar, the Head Economist at TSKB Economic Research, highlighted the importance of understanding the extent to which countries are interconnected and developing responsible policies, stating “The integration of the Turkish economy with the global economy its high openness to the outside world are important advantages. Investing to increase competitiveness in foreign trade will be an important agenda item in the short to medium term. We therefore think that it is high time to enhance Turkey’s working environment with a sense of responsibility towards the climate crisis.”

An increase in logistic costs and commodity prices

According to the report, which remarks on the continued strong demand in the manufacturing industry throughout the pandemic, there has been temporary disruption in the production of intermediate goods for country specific and sectoral reasons in Turkey during the pandemic. On the other hand, there has been noteworthy increases in transportation costs. In the second half of 2020, container costs surged by 250% for transportation from China to Europe, with an additional 60% increase in the first 5 months of 2021. Prolonged lead times and company decisions to stock up for some products piled pressure on goods prices. As a result of these factors, commodity prices recorded an additional 24% increase in the first 5 months of 2021 even after having increased by 26% in the second half on 2020. These movements have heightened concerns over inflation while also triggered an increment in the bond yield of developed countries in February-March, 2021 and repricing in the risky assets. In the report which is remarking that policy makers will keep the interests low for a long time therefore will partly ease the tension on the financial market, it is indicated that market and policy makers’ difference of opinion about inflation’s persistency is increasing the uncertainty thus leading to maintain the importance of downside risks on the outlook.

Climate-friendly agricultural production has to become prominent in the struggling with inflation

The rate of consumer price index (CPI) inflation, which had been in low double-digit levels in the first quarter of 2020, surged to 14.6% at the end of 2020. Consumer inflation exceeded 17% in April 2020, with the cumulative costs and cooling down in the domestic demand being limited in the previous 5 months of 2021. Besides, the increase in commodity prices, particularly global agriculture prices, has been piling additional pressure on inflation.

While reflecting that the cost pass-through may be limited by a continued cooling down in domestic demand and decrease in exchange rate volatility in the short term, the report underlines the importance of structural policies, especially in regard to climate-friendly agricultural production and food safety, in tackling inflation. In the light of the experience of recent years, in addition to the growth and employment policies, it is highlighted that the tools to be used to tackle inflation and reducing external imbalances have to be strengthened with development policies.

Turkey’s market share in the EU grows as European firms step up their search for durable supply chains

The report reflects that sales both at home and abroad have been instrumental in the industry’s strong progress, noting that in the January-March 2021 period, the real domestic turnover in 20 of the 23 sub-branches in the manufacturing industry and the real international turnover in 17 of the sub-branches had already exceeded pre-pandemic levels. It is noted that performances differ when domestic and foreign sources of the turnover in industry sub-branches are examined. The report notes that although domestic turnover has decreased in the computer, electronics, optics and food business lines, international turnover continues increasing, which is an important development. The report explains that the search for durable supply chains after the pandemic took place in regions closer to the end user, while the spread of regional supply chains has come to the forefront, while proposing that this trend may have been reflected to Turkey-EU relations. While Turkey’s market share in the EU had been declining in past years, especially in some areas related to textile and clothing, it has followed a remarkable increase since the onset of the pandemic.

Tourism sector only set to return to its pre-pandemic levels by 2023

The report also mentions the tourism sector as one of the sectors, which has been most affected by the pandemic on a global scale. The economic conditions brought about by the pandemic and ongoing health concerns stand out as the factors reducing the pace of the recovery. The report states with the domestic vaccination rollout and the bilateral negotiations between the source countries of tourism will determine sector’s short-term performance, yet as national and international institutions point, the sector will be able to return to its 2019 levels by 2023.

The “Setting Sail for a Greener World in the Pandemic Storm” report please click.

Türkiye Sınai Kalkınma BankasıTurkey’s comprehensive environmental portal cevreciyiz.com is supported by TSKB.