Fatih Özatay, PhD - [Archive]

Looking toward 2013 (1) 19/12/2012 - Viewed 1986 times

In the light of the available information, we can suggest that Turkey’s annual growth rate in 2012 will be around 2.5 percent.

Having approached the new year, it is time to share some forecasts on 2013. To put those into a context, I will depict a few scenarios concerning external conditions and shape my forecasts accordingly. I did the same by the late 2011 and put forth two scenarios, one optimistic and one pessimistic, by 13 September 2011. Later on, I provided some derivative scenarios. So, first let me remind of last year’s scenarios.

The optimistic scenario assumed that the European growth will not intensify and the decisions of the Federal Reserve (Fed) on a new quantitative easing will determine the global outlook. After assessing possible developments I said, “Under these circumstances, growth rate will be above the potential and we continue addressing the current account deficit problem. I believe however that the realization of this scenario is least likely under the current circumstances.”

The second scenario was marked with growing risks on the intensification of the European crisis, with bank balances deteriorating all over Europe. I argued, “Turkey encounters a climate similar to that witnessed during the global crisis: the economy contracts and unemployment escalates. Anew QE decision by the Fed might limit these risks to some extent.

Later, I proposed less optimistic and less pessimistic versions of these two scenarios and said that the new versions could be realized depending on two factors:  “Whether or not the European Central Bank (ECB) raises the limit of purchasing for the bonds of crisis countries and whether or not it issues Eurobonds in order to facilitate borrowing by troubled countries.”

In September 2011, I was of the view that the less pessimistic scenario was more likely than the less optimistic scenario and forecasted growth under these circumstances to be in the 1-3 percent interval. I associated the sharp drop in growth rate with two factors: “First, almost half of Turkey’s exports go to Europe, whose troubles imply a fall in imports from Turkey. Second, European banks are expected to lower credit supply substantially which means that it will be more difficult for Turkey to access foreign funds.”

Growth at 2.5 percent

External conditions evolved in a direction in between my optimistic and pessimistic expectations: Europe struggled with troubles throughout 2012. The ECB announced the long-expected decision by September while Eurobond issue was never raised. On the other hand, the Fed announced that by mid-September bonds will be purchased. In a nutshell, the less pessimistic scenario held in the two thirds of the year and the less optimistic scenario held in the rest.

The primary factor that guided my expectations for slow growth was in force throughout the year; Turkey’s exports to Europe were sluggish. The second factor on accessing foreign funds applied only in the first quarter. In the light of the available information, we can suggest that Turkey’s annual growth rate in 2012 will be around 2.5 percent. Given the relative improvement in external conditions, growth rate around the upper limit of my forecasts is quite likely. Next time I am planning to address potential international developments in 2013.

This commentary was published in Radikal daily on 18.12.2012