Written by Prof. Ali Turel, Cankaya University, EECFA Turkey
Compared to neighbouring countries to Ukraine, Turkey has been relatively less affected by the human consequences of this war. The number of refugees coming from Ukraine, disclosed by the Minister of Interior of Turkey on 21 March, accounts for 58 thousand, a much smaller figure than the at least 5 million refugees from Syria, Iraq and Afghanistan who escaped from armed conflicts or wars in their countries and are still in Turkey.
The direct effects of the war in Ukraine on the construction output of Turkey may not be determined yet, because construction statistics are made available by the Turkish Institute of Statistics in 2-3 months from the end of the coverage period of statistics. Indirect effects, however, are mixed with macroeconomic problems that have been in place since November 2021; the most notable one being the falling exchange rate of the Turkish Lira against foreign currencies, leading to high inflation. The annual rate of inflation according to the Consumer Price Index was 19,89% at end October 2021 and grew to 48,69% by the end of January 2022 and further rose to 61,14% two months later. The yearly rate of change in Domestic Producer Price Index was already 46,31% at end October 2021, and with steeper rises, it went up to 93,53% and to 114,97% by the end of January and March 2022, respectively. Rises in petrol and natural gas prices in international markets connected to the war in Ukraine should be an important contributing factor to further increases in inflation.
Construction cost is primarily affected by the rates of change in Domestic Producer Price Index in Turkey. The annual rate of change in the Construction Cost Index was 41,93% in October 2021 and rose sharply to 79,91% at the end of January 2022, which is the latest available statistic in construction cost. Housing Price Index had a similar trend to Construction Cost Index as the annual housing price growth was 77,4% in nominal, 21,2% in real prices by the end of January 2022. Since wage increases are indexed with the Consumer Price Index in Turkey, the 21,2% real rise in housing prices should be an indication of the lower affordability of housing.
Russia and Ukraine are important trade partners to Turkey. The value of trade with Russia increased by 25,3% and the one with Ukraine by 63,8% in February 2022 from the same month of 2021. The war could cause disruption in the movement of goods, particularly between Turkey and Ukraine. We will be able to know its effects when statistics on international trade are published for March and the following months of 2022.
EECFA (Eastern European Construction Forecasting Association) conducts research on the construction markets of 8 Eastern-European countries, including Turkey. The current reports were issued in December 2021 and the next reports will be issued in June 2022. For orders and sample report: eecfa.com