Prominent Economist Warns of Inflation-Unemployment Trade-Off
Renowned Turkish economist Mahfi Eğilmez has issued a stark warning about the alarming course of inflation in Turkey, highlighting a critical trade-off between controlling inflation and maintaining employment levels. In his recent analyses published in late May 2025, Eğilmez presents compelling evidence that the Turkish economy is facing significant challenges despite public perception that no crisis exists.
According to data released by the Turkish Statistical Institute (TÜİK), Turkey's GDP growth has slowed dramatically to just 2% in the first quarter of 2025, down from 5.4% in the same period last year. This substantial deceleration signals what Eğilmez describes as "a serious loss of momentum" in the economy. The agricultural sector contracted by 2%, while industrial production stagnated with 0% growth. Only the construction sector showed robust expansion at 7.3%.
"The growth is not coming from agriculture or industry, but primarily from construction, imports, and other service sectors," Eğilmez notes, arguing that this indicates an increasingly unhealthy economic structure. Household consumption increased by just 2%, exports remained flat, while imports rose by 3%. This imbalanced growth pattern suggests the economy is becoming increasingly dependent on sectors that do not contribute to long-term productive capacity.
Particularly concerning is the employment situation. While the seasonally adjusted unemployment rate stands at 8.6% as of April 2025, the broader unemployment rate—which includes those who have given up looking for work—has surged to an alarming 32.2%, up from 27.4% a year ago. "If we look at both unemployment rates together, we can say that one-third of the workforce is unemployed, but only about one-quarter of them are actively looking for work," Eğilmez explains. This discrepancy reveals a growing sense of hopelessness among job seekers in the current economic climate.
Drawing on the Phillips curve economic theory, Eğilmez demonstrates that Turkey's historical data from 1990-2024 confirms a strong inverse relationship between inflation and unemployment rates, with a correlation coefficient of -0.71. As inflation decreases, unemployment tends to rise—a relationship now playing out in real-time in the Turkish economy. The economist emphasizes that this pattern has been consistent in Turkey for decades, making it a reliable predictor of economic outcomes.
Despite these troubling indicators, many Turks do not perceive the current situation as a crisis. Eğilmez attributes this to a comparison with the 2001 economic crisis, noting that "Turkish people think they are facing a crisis only when GDP growth falls and turns into contraction, creating slumpflation, and unemployment rises significantly." He points to crowded cafes and restaurants as misleading indicators, explaining that during economic uncertainty, people who have lost hope in investment opportunities tend to spend their money on services instead.
Looking ahead, Eğilmez predicts that the government will gradually abandon its anti-inflation policies in favor of growth-stimulating measures. He anticipates new credits to businesses through the Credit Guarantee Fund, state support for labor payments, tax reductions, and interest rate cuts. While these measures may temporarily boost growth, they risk reigniting inflation, creating a vicious cycle that has plagued the Turkish economy repeatedly.
Eğilmez concludes with a powerful warning: "If you have succeeded in bringing inflation down to normal levels once, never allow it to rise again. Never think that you can bring it down again, because everything has a cost, and sometimes this cost can be severe."
Related links in Turkish:
Ne Krizi?
https://www.mahfiegilmez.com/2025/05/ne-krizi.html
Enflasyon Düşerken İşsizlik Artar mı?
https://www.mahfiegilmez.com/2025/05/enflasyon-duserken-issizlik-artar-m_26.html
Photo: Wikipedia Commons