Last Monday, one data release after another came out. We learned that the share of imports in the external balance of the automotive sector increased, the real exchange rate index tended to appreciate in favor of the TRY, Turkey’s gold imports remained strong, and according to October foreign trade data, there was a limited decline in the external deficit. In fact, all data are interrelated and continue to give an idea about the competitiveness of the industry and the dollarization of the economy.
Limited recovery in competitiveness
In the CBRT’s economic tendency survey published last week, an index measuring the competitiveness of the industrial sector in the EU market and outside the EU is published.
The industrial companies, who have generally lost competitiveness since the end of 2021, have been showing signs of recovery in recent months, but still have a competitiveness far below the historical data. This weakness is more clearly observed in the EU market. Although there is a relatively better recovery in non-EU markets, we see that competitiveness is still well below historical data.
Exports need support
Personally, I am not someone who believes that competitiveness in exports can be achieved through price. Scientific academic studies also point to this. The competitiveness of a country is determined by the quality, technology, design, in short, the added value of the product it sells. The growth rate of the markets we export to is an important factor in your competitiveness. However, in the last two years, we have entered into such a strong inflation process that production costs have increased significantly. The flat course of exchange rates or a more limited increase in exchange rates compared to the increase in costs led to either an increase in the prices of our products or we could not keep up with the price cuts of our competitors. Therefore, we lost markets. In an environment where the global economy is slowing down, that is, the market is shrinking, and competition is increasing even more. In this context, price competition has become much more important in winning lost customers.
In the coming period, the more we can substitute the slowdown in domestic demand with external demand in the fight against inflation, the more we can reduce our risks to growth. Supporting exports of both goods and services is important not only for growth but also for maintaining competitiveness. Reducing the tax burden, lowering energy costs, and allowing exchange rates to be set at a competitive level can be important policy elements for competitiveness. The public sector needs to save to create resources for these supports. Trying to increase exports with a constantly competitive exchange rate will never be realistic. Still, today, industry and exporters need to return to the factory settings that they lost in terms of competitiveness in the first place. In an environment where demand slows down, the pass-through of the competitive exchange rate to inflation will also decrease. The stronger we are in product competition after price competition, the more our currency will appreciate.