The effect of falling oil prices on the Turkish economy

The effect of falling oil prices on the Turkish economy

Turkey's economic administration hopes that the fall in world oil prices will continue. The continuation of this trend may make serious positive contributions to economic equilibriums, starting from the decreasing of the high current account deficit figures.

The low course of world oil prices is very important for energy importing countries like Turkey. However, how the low oil prices will affect other parameters in the global economy, and their reflections on us, should also be evaluated. This requires quite complicated calculations.

For this reason, the exact effect on economic equilibriums of the fall in world oil prices cannot be calculated, at least for now. Several estimations are indeed being done, but when indirect effects are in question, net figures cannot be reached. 

In domestic markets, there are many who expect that the continuation of the fall in world oil prices will bring a positive atmosphere, especially in terms of current account deficits and inflation. Moreover, we can even say this positive atmosphere has already started being bought. One should also note here that the markets do not want to miss even the slightest opportunity to adopt an optimistic atmosphere.

On the other hand, just as there is nothing clear about the continuation in the fall of world oil prices, its indirect effects will also become tangible only after some time.

For example, it is a fact that Russia’s economy is suffering because of low oil prices and that it has been forced to make high devaluations. The trouble that Russia is experiencing has started negatively affecting not only itself but all developing countries. The national currencies of other developing countries and the Turkish Lira are seriously losing value against the dollar. In other words, a portion of the positive contribution of the drop in oil prices is taken back with the increasing foreign exchange rates.

Possible positive disintegration

Naturally, the fall in oil prices positively affects the current account deficit, but because of the rise of foreign exchange rates when this fall is not identically reflected on prices of fuel oil and oil products, its contribution to inflation is limited.

On the other hand, countries that are exporters of oil and other raw materials will indeed be affected negatively for as long as the low prices continue. These countries will have to cut their imports as their incomes decrease. Thus, it will be inevitable to experience falls in the exports that Turkey can make to neighboring countries, such as Russia, etc. What I'm saying is that while the current account deficit is narrowing because of the oil bill, this may turn into a mechanism that would curb the drop of the current account deficit, due to restrictions in exports to these countries.

Of course, these indirect effects will be seen in figures, but at different intervals.

Turkey had positive opportunities in this process in comparison to developing countries that sell raw materials. It could have held its foreign exchange rates in a more stable position if it had disintegrated positively and attracted foreign investors, but it was not able to do so.

In short, falling oil prices will make a positive contribution to Turkey's economic equilibriums, but not as much as has been suggested.