World Bank: Minimum wage hike will trigger inflation
by Daily Sabah
ISTANBULJan 19, 2016 - 12:00 am GMT+3
by Daily Sabah
Jan 19, 2016 12:00 am
World Bank has said that the 30 percent increase in minimum wage might cause inflation to exceed the expected level for 2016. The bank forecast that the Turkish economy grew 4.2 percent in total in 2015, considering the more than expected growth rate of 4 percent that Turkey reached in the third quarter of 2015. World Bank also estimates 3.5 percent growth in Turkey for the years of 2016 and 2017.
According to World Bank's regular Turkish economic note for January, the inflation rate for 2016 is estimated at 7.5 percent and at 7 percent for 2017 due to the 30 percent increase in the minimum wage implemented on Jan. 1, 2016. The bank expects the inflation level to be higher than the government's targets. The ruling Justice and Development Party (AK Party) increased minimum wage to TL 1,300 ($428) per month as per the party's election promise. The government will be covering 40 percent of the extra cost of this wage hike to share the burden with the private sector.
Further, the report said the rate of the centralized administration budget deficit to Gross Domestic Product (GDP) is expected to increase from 1.3 percent to 2.7 percent in 2016 and be about 2.6 percent in 2017. World Bank predicted the current account deficit to be around $35.7 billion in 2015 and drop to $34.7 billion in 2016 but increase to $38.2 billion in 2017. This means the deficit's ratio to GDP will be 5 percent in 2015, 4.6 percent in 2016 and 4.8 percent in 2017.