Financial Fragility on the Road: Rising consumer credit and declining home ownership in Turkey
Please cite the paper as:
“Alper Duman and Anıl Duman, (2013), Financial Fragility on the Road: Rising consumer credit and declining home ownership in Turkey, World Economics Association (WEA) Conferences, No. 4 2013, Neoliberalism in Turkey: A Balance Sheet of Three Decades, 28th October to 16th December 2013”
Turkey by and large avoided the financial meltdown thanks to its moderate level of household debt ratio and relatively sound public finance structure. The stylized fact is that the consumption loss as a percentage of GDP has been greater for the countries with higher growth rates of household debt-to-income ratios prior to the global crisis. Although Turkey also witnessed a surge in household debt levels, the starting point was so low that the general effect was not as destructive. We study two main factors that will make this dynamic more fragile and hence increase the likelihood of a financial crisis in the future. First, the share of consumer credit in household budgets increase steadily for the lower and middle income groups. Second, due to formalization of land and real estate markets, home ownership rates decline for the median group of households which constitute the backbone of the labor force. Both factors have the potential to induce dramatic rises in household debt-to-income ratios and create systemic financial risks.