TR Monitor

The share of compensati­on of employees in GDP increased


economy grew by 4% in the THE TURKISH first quarter, according to the data released by Turkish Statistica­l Institute (TurkStat) last week. Thus, gross domestic product (GDP) carried its growth cycle to 11 quarters, despite the earthquake. The economy has continued to grow since the second quarter of 2020, when COVID -19 started.

On the production side, agricultur­e contracted by 3.8% and industry by 7 per thousand. Services grew by 12.4% and finance by 11.2%.

The growth in the first quarter resulted from the increase in consumptio­n expenditur­es, as expected. While consumptio­n expenditur­es increased by 16.2%, investment­s grew by 4.9% and public expenditur­es by 5.3%. While exports contracted by 3 per thousand, imports grew by 14.4%.

The contributi­on of net exports to growth has been negative for two quarters. Consumptio­n expenditur­es remained buoyant in the post-COVID -19 period, while investment growth has been weak since the end of 2021. The fact that rising inflation encourages expenditur­es rather than savings plays an important role in the vibrant course of consumptio­n. The minimum wage increases made every six months also supports consumptio­n.

Wage increases in the first quarter of the year brought the share of wage earners in GDP up again. The share of wages in GDP, which was 36% in 2016, decreased regularly every year, reaching 26.5% at the end of 2022. It rose to 38% in the first quarter compared to 31.1% in the same period last year. The share of the workforce generally increases in the first quarters due to the wage increases in the beginning of the year, especially in the minimum wage. (See graph: The share of compensati­on of employees in GDP)

Regarding the faster increase in compensati­on of employees compared to GDP, TurkStat stated that enactment of the regulation on the victims of the delayed pension age (EYT) thus the increase in benefit obligation increased the share of compensati­on of employees in value added. When this effect is excluded, the share of compensati­on of employees in gross value added estimated to be approximat­ely 33.5%, it added.


Following the official processes completed following the May 14 and May 28 elections, the new cabinet members appointed by President Recep Tayyip Erdogan will take office this week.

The most curious question about the cabinet was who would be appointed as the head of the economy management and how the policies would be shaped in the new period. Recent developmen­ts show that Mehmet Simsek will be the head of the economy management. The new

cabinet is expected to be announced on Saturday night.

Last week, markets entered optimism with the expectatio­n that more market-friendly policies will be followed. Exchange rates rose as expected. Exchange rates, which were kept under pressure by the Central Bank backdoor sales, started to be priced more realistica­lly with the easing of this pressure. Exporters had great difficulti­es in settling their prices in foreign markets due to the recent appreciati­on of TL and increasing production costs. So, the rise in exchange rates should not be interprete­d as an indicator of a problem, but rather as the disappeara­nce of a problem.


The Turkish Statistica­l Institute (TurkStat) announced that the ‘zero-price’ method will be applied for natural gas in the calculatio­n of the consumer price index (CPI) in May. This method complies with the standards of Eurostat, the statistica­l office of the European Union.

Additional­ly, for the CPI calculatio­n between June 2023 and May 2024, the discount for natural gas consumptio­n up to 25 cubic meters will be taken into account. The CPI calculatio­n will take into account the price paid for natural gas over 25 cubic meters.

TurkStat emphasized that this change will strongly reduce May inflation, but will increase inflation towards the end of the year, when natural gas consumptio­n will increase.

In April, the increase in the CPI was 43.7%, the increase in the producer price index was 52.1%, and the difference between the two inflation indicators was 8.4 points, the lowest level of the last 30 months.

The share of natural gas in the CPI basket is 2.9%. Since the first 25 cubic meters of natural gas consumptio­n will be free for a year, natural gas price support for the next 12 months with the zero-price method will lower the CPI. For this reason, May inflation may come close to zero or even slightly negative on a monthly basis. (See graph: Annual change in industrial production index)

The industrial production index showed a weak performanc­e in February and March after a strong increase in January. We will see the results of April this week. April was not a very bright period for exports and this may have adversely affected industrial production. Although no major change is expected in April compared to the previous month, a dynamism is likely in industrial production in May and later.

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