A challenging period concerning inflation
Fatih Özatay, PhD
11 July 2013
The CPI has not converged with the headline inflation unlike what is normally expected. Headline inflation has long ago lost its function as a “headline” indicator. The period ahead will be challenging for Turkey concerning not only growth but also inflation. The initiation of the monetary tightening process in the US puts an upwards pressure on the currencies of emerging market economies including Turkey. It appears that this pressure will be here with us for quite a long period. This does not mean that it will be a permanent challenge, though. The exchange rate might have ups and downs and fluctuations occasionally. Given the volume of the quantitative easing operation the FED has carried out since the beginning of the global crisis, however, the main exchange rate trend will be upwards.
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Growth: below the average in the next few years?
Fatih Özatay, PhD
09 July 2013
Uncertainty is the nemesis of the confidence in an economy. It is not realistic to expect a rapid economic recovery in this environment. Yesterday industrial output figures for May were released. Here are some numbers: in the first five months of 2013 industrial output grew year-on-year by 2.1 percent. This is lower compared to 3.3 in the first five months of 2012. The picture becomes a bit brighter if we make the analysis over a shorter timeframe. In April and May, industrial output increased year-on-year by 3.3 percent, which is 2 percentage-points higher compared to the rate in the first quarter of 2013. In May alone, output growth was 2 percent, but we should not pay attention to this since observations based on a single month are likely to be unstable.
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Overpraising (3)
Fatih Özatay, PhD
06 July 2013
In the 2003-2012 period, GDP of emerging market economies on average grew by 1.95 times, compared to Turkey’s 1.43. What a repulsive scene: a general out front. A few more sitting behind him, accompanied by religious authorities and come civilians. Purportedly, they have saved the country. People celebrating at squares. Egypt is on world’s radar nowadays. On March 12th, I wrote an underwhelming piece on the Egyptian economy and I have nothing more to offer. The best I can do is to return to the “overpraising” series on Turkey. So far I have focused on the “over” part of the deal and will do the same today. As you might remember I was obsessed about the per capita income developments.
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Obsession about interest rates: Good or bad?
Fatih Özatay, PhD
04 July 2013
If some people are obsessed with interest rates and if they hold important offices, it becomes difficult to design economic policy. You might sure want interest rates to be low regardless of the general economic circumstances. But this would be nothing but a fantasy. Rather than fantasizing, it is necessary to make sure that conditions which will keep interest rates low are fulfilled. For instance, if the problem is indebtedness, borrowing behavior must be revised. Or if there is a savings gap and the economy needs to borrow from abroad, the economy will inevitably be affected by external developments. If interest rates abroad are rising, they inevitably rise in the borrowing country as well. To overcome this, it is necessary to improve the domestic savings rate and lower economic risks.
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Caution for the next three years
Fatih Özatay, PhD
02 July 2013
The FED will evidently clear away the lump as soon as growth and employment figures reach desired levels. If people give up the conspiracy theories and try to understand what is actually going on, they will realize that important economic risks will be facing Turkey in the next three years. Evidently, chief among these is that the Federal Reserve (FED) withdraws liquidity it has generously injected over three quantitative easing programs. During this process, US interest rates will increase considerably.
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Let’s see what the constitutional court will decide this time
Fatih Özatay, PhD
29 June 2013
The hearing will potentially be a top item on the financial markets’ radar in the coming days. In the fall 2012, all we talk about was a constitutional court. Not Turkey’s but Germany’s. Due to the European crisis, European leaders had held a number of meetings. In the one held in December 2011 leaders decided among others to put into operation the European Stability Mechanism, the permanent body that will replace the temporary European Financial Stability Fund in July 2012 instead of 2013. The advantage was that if opened earlier, the Stability Fund would be larger. Moreover, the temporary fund relied on guarantees and did not have fresh funds while the Stability Fund would have fresh funds. The positive mood enabled by this decision and others melted into air in a couple of days.
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We should be aware of economic vulnerabilities
Fatih Özatay, PhD
27 June 2013
Tough days are to come. We should be aware of our vulnerabilities when taking our steps. The possible policy reversal by the Federal Reserve (FED) affected emerging market economies adversely due to the rise in risk perception in the international markets. Reports by the international financial markets suggest that if this trend continues, Turkey will be among the countries that will be affected at the highest degree.
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Overpraising (2)
Fatih Özatay, PhD
25 June 2013
If the economy has vulnerabilities, you need to focus on and try to overcome these instead of praising the economic performance. That’s the responsible thing to do. For the last couple of weeks, Turkey has been raised by international financial institutions among the countries that would be affected most adversely by the latest developments in the financial markets. In some of these institutions’ reports, Turkey is on top of the list. What is going on? Was the Turkish economy not a shining star? Why now it is pronounced among the most vulnerable economies of the world?
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FED: Then and now (3)
Fatih Özatay, PhD
22 June 2013
Turkey has to make sure that this movement will not push unemployment up or GDP down. The way to do this is to prevent any loss of confidence in the economy. On June 1st, I started a series about the impact of the possible changes in the FED’s policy. After two pieces, the Gezi Park incident intervened. Today I want to continue from where I stopped.
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Overpraising
Fatih Özatay, PhD
20 June 2013
If the economy grows as expected by 4 percent in 2013, per capita growth rate will be 2.7 percent, lowering the average of the 2204-2013 decade. In my last commentary I talked about average five-year per capita growth rates for each year since 1955. Let me give some more statistics. In the 2003-2007 period, the rate was significantly high, at 5.6 percent. This is the main reason underlying the “Turkey grew so fast” argument that has turned into blind faith. But it all demolishes when we look at the figures for the five-year period ending with 2012: per capita growth rate for the 2008-2012 period is 1.7 percent compared to the average since 1955 at 2.4 percent.
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