High inflation, weaker lira to impact Turkish textile-apparel sector

“The nearly 20 per cent annual inflation rate is driven by food, services, housing and transportation prices, leaving consumers with little money for their clothing needs. So, people are postponing are purchasing only the minimum necessary textiles for their daily needs,” according to Suat Idil, who represents Fibre2Fashion in Turkey. “The decrease in domestic demand is definitely going to impact manufacturing as textile-apparel companies will cut down on their production.”

Accompanying high inflation is the weakening currency. Turkey’s currency lira has lost around 25 per cent of its value since the beginning of 2021, and it today stands at 10.37 against the US dollar.  “This is helping textile exporters earn more money right now. Actually, higher inflation and lower interest rate, and thereby weakening the currency, is the government’s strategy for promoting exports. But it is putting big pressure on people as market prices have gone up like crazy. In short term, textile exporters might enjoy this, but then when it comes to importing raw materials from abroad it would also affect them in a bad way,” explains Idil.

During January-September 2021, Turkey’s apparel exports increased by 25.72 per cent to $13.364 billion, compared to exports of $10.630 billion during the corresponding period of 2020. However, its imports of cotton, cotton yarn and cotton textiles (HS chapter 52) increased substantially by 34.2 per cent year-on-year to $2.553 billion during the same period, according to the data from the Turkish Statistical Institute and the country's ministry of trade.

Meanwhile, in addition to the high cost of fuel and other imports, the government this month raised the price of natural gas supplied to the industry by 48 per cent, as a global price spike drove up import bills. One of the largest gas importers in Europe, Turkey depends on pipeline gas from Russia, Azerbaijan and Iran as well as liquefied natural gas (LNG) imports from Nigeria, Algeria and spot markets.

“As a result of the current scenario, new investment in the country’s manufacturing sector, especially from domestic players, will fall drastically. Already, people have started shifting their savings to gold and foreign currencies,” says Idil. “It is ironical that this comes at a time when the West is actively pursuing ‘near-shoring’ and ‘China + 1’ strategy,” a person sourcing goods for a European retailer told Fibre2Fashion on the condition of anonymity.

According to economists in Turkey, one of the major reasons for the present high rate of inflation and the weakening of the currency is the government’s insistence on low interest rates. They argue that this may have more side effects next year, which may even spill into 2023.

Fibre2Fashion News Desk (RKS)