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Sanctions against Turkey intensify inflationary pressure

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The economic sanctions imposed on Turkey in the context of the shooting down of a Russian fighter jet will hit not only the Turkish, but also the Russian economy. Private consumption is likely to take a further knock.

Allianz SE
Munich, Dec 02, 2015

The list of sanctions imposed on Turkey is fairly sweeping. It covers a ban on charter flights between the two countries, import curbs and bans on certain Turkish products, restrictions on Turkish companies operating in Russia as well as a ban on the recruitment of Turkish citizens starting in 2016. This bundle of measures will doubtless leave its mark on the Turkish economy. The tourism sector in particular is likely to be badly hit, with some 4 million Russian tourists a year having visited the country in recent years.


But the sanctions will also have an impact on the Russian economy itself by additionally stoking domestic inflationary pressure. This applies above all to the import ban on fruit and vegetables. Turkey accounts for roughly 20% of Russian imports of these products. That corresponds to some 10% of total Russian consumption of fruit and vegetables. Prompt import substitution looks impossible on seasonal grounds alone. It is unclear how quickly other supplying countries could replace Turkey. Given that there is also talk of import restrictions on other Turkish products such as textiles, we believe that the curbs on imports from Turkey will push up already high consumer price inflation further by between 1 and 2 percentage points. In October annual inflation stood at 15.6%, for foodstuffs at 17.3%.


The expected acceleration in inflation will eat into private household purchasing power and exert an additional drag on real private consumption. This exacerbates the downside risks to our GDP forecast for next year. We have so far been assuming a 1% drop in output in 2016 – following an expected 4% slide this year, caused mainly by a contraction in real private consumption to the tune of around 8%.

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