Turkey Tops Global Wealth Ranking Despite Soaring Inflation: A Surprising Result
Turkey has surged to the top of the global wealth ranking, registering a staggering 157% increase in wealth per adult between 2022 and 2023, according to the UBS Global Wealth Report 2024. This remarkable growth stands in stark contrast to the country’s high inflation, which currently sits at nearly 72%, placing a heavy burden on millions of Turkish citizens.
Key Takeaways:
- Turkey’s wealth surge is attributed to rising asset prices, particularly housing, driven by high inflation. While inflation has eroded the purchasing power of many, those who own assets like homes have seen their wealth grow significantly.
- The currency effect plays a crucial role in the disparity between dollar and local currency wealth growth. While Turkey’s wealth increase in USD terms is impressive, it more than doubles when measured in Turkish lira, highlighting the impact of currency fluctuations on wealth estimations.
- Despite the seemingly positive wealth figures, many Turks are struggling with declining real wages and a sense of being "asset-rich and cash poor". This means that while their assets may have appreciated in value, their real income may have shrunk, leading to financial difficulties in day-to-day life.
The UBS Global Wealth Report defines wealth as the value of financial and real assets, such as housing, minus debts. The report’s authors emphasize that while asset prices, particularly housing, have soared in Turkey due to high inflation, it doesn’t necessarily translate into improved living standards for all.
"In certain ways, the high pace of inflation also helps explain why wealth has risen much much more in local currency terms, at least [more] than in other countries because it’s worth keeping in mind that wealth is measured in nominal terms," Samuel Adams, an economist at UBS Global Wealth Management, told CNBC. "If inflation is very high, what tends to happen is that if you have a real asset like housing, the house prices tend to rise in line with inflation, if not even faster," he explained.
However, the report acknowledges the uneven distribution of this wealth growth. While those with assets benefit from rising prices, those without assets or with stagnant wages are feeling the brunt of inflation. "Of course, it doesn’t mean that everybody benefits to the same extent," Adams added. "If you’re not in those assets, if your wage rises don’t keep pace with inflation, then, of course, it will be fairly negatively affected."</
The report further underscores the "currency effect," which drastically alters wealth growth figures. Turkey’s wealth growth in local currency, at nearly 158%, is more than double its growth in USD terms, at 63%.
"Türkiye’s already exceptional growth of over 63% in USD… more than doubles to nearly 158% in Turkish lira," the report states. "This difference highlights the currency effect, that is, the growth in wealth measured in local currency is often higher than that in US dollar terms," the report adds.
While Turkey’s wealth has skyrocketed over the past 15 years, increasing by 1708% in local currency terms between 2008 and 2023, UBS Global Wealth Management’s Chief Economist Paul Donovan points out that a rising value of assets doesn’t necessarily mean increased real income.
"In terms of living standards rather than wealth, it’s also important to remember that if you own a house, the value of your house has gone up, but your real wage may be negative at the same time. So you can be… asset rich and cash poor," Donovan said.
"That’s certainly a possibility, where a lot of the stresses that have arisen in the Turkish economy over the last few years have come about because of negative real income," Donovan adds, stressing the importance of considering the real income impact beyond asset value appreciation. "Not necessarily what’s happening on the asset side," he concludes.
In conclusion, while Turkey’s wealth growth figures are impressive, they paint an incomplete picture. The impact of high inflation on real wages and purchasing power cannot be ignored. While some Turks may be benefiting from rising asset prices, many others are struggling with a shrinking real income and a sense of "asset-rich, cash poor." This highlights the need for a nuanced approach to understanding Turkey’s economic situation, factoring in both wealth accumulation and the wider impact of inflation on living standards.
