Fatih Özatay, PhD - [Archive]

Looking towards 2013 (2) 20/12/2012 - Viewed 1718 times

As the majority of the conditions that will influence Turkey’s economic performance in 2013 are not under our control, we have to design a set of different scenarios.

Forecasts about the economy in 2013 have to take into account the external conditions that affect Turkey’s. As the majority of these conditions are not under our control, we have to design a set of different scenarios. So, here is my “base scenario.”

Democratic and Republican parties concert, preventing a fiscal cliff and the risk of implementing wrong policies at a wrong time. Therefore, the US does not affect global growth or international risk appetite negatively. On this occasion, let me remind that the US does not have much time for reaching a consensus.

The current conditions in Europe remain intact. In other words, Europe continues slithering. Also, please note that new risks are unveiling. Negative developments in France are unveiling. But I will address these issues within the context of the pessimistic scenario.

Growth performance of Turkey’s export markets are in line with the IMF’s latest estimates: European Union grows at a rate slightly above that in 2012 while growth in Middle East and North Africa, the second largest export partner of Turkey, diminishes year-on-year. In cumulative, Turkey’s export partners grow only slightly.

The influence of the political tensions across Turkey’s region remains unchanged. The price of crude oil does not change, either.

Despite an upwards trends in credit demand, domestic credit growth rate does not change considerably, in harmony with the recent statements by the economy management. Some of you might think that it is odd that I consider credit growth rate as exogenous. But it is not: credit growth rate reflects the composition of a series of developments and thus it is an “outcome”.  Technically, it is not exogenous. On the other hand, the management of economy has tools to limit the credit growth rate when desired, like altering capital allowances and using the telephone diplomacy as was done in Turkey, for example.

And why these assumptions are important? The first two are critical particularly concerning international risk appetite and foreign fund inflows to Turkey. They help us estimate private investment expenditures via the confidence in the economy and evaluate the direction of a potential pressure on exchange rate. Together, the first two assumptions predict that international risk appetite will fluctuate due to the uncertainties in Europe yet will maintain the main trend while US will not disturb the international risk appetite. The third assumption also can be read from this angle.

These assumptions give some insights into the exchange rate movements. Together with the one on crude oil prices, they give clues about possible inflation dynamics. The third assumption, evidently, is related closely with the export performance. The last one is also critical: it implies that the credit channel will not enable an additional improvement in private consumption and investment expenditures compared to 2012. Of course, other factors might help improve private investment and consumption. I will address these in the next commentary. Later, I will present alternative scenarios.

This commentary was published in Radikal daily on 20.12.2012