Income distribution continues to deteriorate
in income distribution THE DETERIORATION continued to accelerate in Turkey in 2023, according to the Turkish Statistical Institute (TurkStat). The Gini coefficient rose to 0.433, and the P90/P10 ratio reached 15.0 last year.
The Gini coefficient is considered among the healthiest indicators of the income distribution. If the figure is near zero, the income is equally distributed between people across a country. If the figure is near 1, the inequality in income distribution increases. If the figure is 1, it means that only one person holds the country’s income, and if the figure is zero, it indicates that all people have equal income in a country. However, it’s theoretically impossible.
There are two findings for the situation in Turkey. One of them is that the coefficient has gradually increased in recent years, and the income distribution has deteriorated. The figure started to show an upward trend after 2014. But the actual deterioration was in 2022 and 2023. Certainly, negative real interest rates, FX-protected TRY deposit accounts (KKM), and FX rate hikes played a significant role in deterioration in the last two years.
The second one is the situation in Turkey compared to other countries. Turkey is among the countries with the most deteriorated income distribution compared to others. Costa Rica, Chile, and Mexico are also among the weakest countries in this field. Czechia, Slovenia, Belgium, and Slovakia are the countries with the lowest Gini coefficient.
The P90/P10 ratio is another deterioration indicator of income distribution. It rose to 15.0 in 2023. It takes the ratio of the top 10% of incomes to the lowest 10% of incomes. The P90/ P10 ratio hovers around 5.0 in most other countries, while it reached 15.0 in Turkey for the first time.
PMI IN THE CONTRACTION ZONE
The Istanbul Chamber of Industry (ISO) Turkey Manufacturing Purchasing Managers’ Index (PMI) rose from 47.5 to 49.2 in January compared to the previous month. However, the index has remained below the threshold of 50.0 for the seventh consecutive month, meaning it has been in the contraction zone for seven months.
The decrease in production reached the lowest level in the last six months, in line with the ease of the adverse course in operating con
ditions. According to the ISO Turkey Sectoral PMI report, new orders slowed in all industries, excluding the chemical, plastics and rubber sector. The clothing and leather products sector saw the sharpest decrease. Half of the ten monitored sectors have started the new year by raising employment.
Excluding the chemical, plastics, rubber, and food sectors, the PMI indices of all industries recorded negative figures.
FED KEEPS THE INTEREST RATE STEADY
The Federal Reserve (Fed) held the interest rate steady at 5.25-5.50%, in line with the market forecasts. Removal of the expression from the FOMC (Federal Open Market Committee) statement that “there could be rate hike until inflation would be brought under control” drew attention. The statement said inflation is still above the Fed’s 2% inflation goal, and it gave a message that it won’t be appropriate to reduce interest rates until confidence is gained that inflation is moving sustainably toward 2%. Fed Chair Powell stated after the meeting that the policy rate is likely at its peak, and it will be appropriate to start rate cuts in 2024. Powel also said the Fed is unlikely to have enough confidence for a rate cut decision in March.