Prospects for the Turkish economy in 2014 (4)
Fatih Özatay, PhD
21 December 2013
The pessimistic scenario might become the “baseline scenario.” And the recent shock that shook Turkey intensifies this possibility. I wrote the paragraphs below about 10 days ago and postponed releasing them. Can you believe how quickly the conditions and agenda change in Turkey! So, below you can see the worse-case and best-case scenarios. This is the original version I wrote 10 days ago. I did not change a word: “What could be the optimistic scenario for 2014? There are three key factors that would enable a more positive outlook for the Turkish economy: first, the Federal Reserve (FED) postpones the tightening to a later date and tapers only a small volume of bond purchases. Second, even the FED initiates tightening, it makes a limited impact on financial markets. Third, the European C
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The massive bribery probe and the Turkish economy
Fatih Özatay, PhD
19 December 2013
If the current economic structure of Turkey were similar to that before the 2001 crisis, the economy would have shaken so badly. The probe initiated recently in Turkey has shaken the entire country. All we wish is that the operation will be carried on lawfully and the people responsible will be detected. This natural wish as a citizen aside, the questions that matters for the purpose of this commentary is how this shocking probe would affect the prospects for the Turkish economy.
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It’s not only inflation that is stiff
Fatih Özatay, PhD
17 December 2013
The outlook of unemployment in Turkey is same as that of inflation. The mean is stiff, and we cannot overcome it permanently. Labor force statistics for September were released yesterday. Employment rate (share of the employed in the working age population), started to rise after the crisis but this trend ended in April. Currently employment rate stands slightly below 46 percent. Unemployment rate, on the other hand, demonstrates an upwards trend in line with expectations. Seasonally adjusted unemployment rate achieved its lowest in mid-2012 with 8.9 percent and it has been increasing since then. The upwards trend was at first undulating but has been in a stable increase since February. Unemployment rate finally reached 10.2 percent in September. Unfortunately, this was the customary level
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Prospects for the Turkish economy in 2014 (3)
Fatih Özatay, PhD
14 December 2013
Non-gold exports increased by 6.3 percent year-on-year in the first 10 months, about two times of that in 2012. Here is the summary of my baseline scenario concerning the external factors that will affect Turkey’s economic performance in 2014: The Federal Reserve (FED) will taper and halt the third quantitative easing by the late 2013 or early 2014. The Republican Party and the Democrat Party will have a conflict on any occasion concerning fiscal policy but each time will reach deal in no time (by the way, we saw the first one of the deals last Thursday). The European Central Bank (ECB) will not carry out quantitative easing via bond purchases. It might cut the policy rate down to zero. The European Union and the Middle East and North Africa will grow at higher rates compared to 2013. The
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Prospects for the Turkish economy in 2014 (2)
Fatih Özatay, PhD
12 December 2013
3.5 percent GDP growth would be a reasonable forecast. A sharper drop in net capital inflows or a significant rise in interest rate would limit GDP growth further and vice versa. Now it is time for my GDP growth forecast for 2014. Should the baseline scenario I presented before holds, I expect lower GDP growth in 2014 than in 2013. The third quarter GDP growth figure announced last Tuesday suggests that 2013 growth will be near 4 percent. For now assume that it will be a sharp 4 percent. Based on this I estimate that 2014 GDP growth will be around 3.5 percent. Below is the basis for this forecast.
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GDP growth in 2013
Fatih Özatay, PhD
10 December 2013
The official growth forecast for 2013 at 3.6 percent probably will be realized readily. In fact, GDP growth might be even higher below 4 percent. As I have shared with you my inflation forecast for 2014, it is time for GDP growth. Our key concern is whether GDP growth in 2014 will be higher compared to 2013. However, for now, we only know the GDP growth figure for the first half of the year (3.7 percent) and Q3 figure will have been released when this article is published. Hence, the 2013 GDP growth figure also should be forecasted.
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Prospects for the Turkish economy in 2014 (1)
Fatih Özatay, PhD
05 December 2013
If you are not implementing an economic policy measure that will radically alter the inflationary outlook, changing inflation depends on luck. A change in inflation = A change in economic policy + luck’. ‘A major change in inflation = A little more change in economic policy + a lot of luck’. This was how I adapted Nobel economy prize winner psychologist Daniel Kahneman’s favorite equations (Success = Talent + Luck and Great success = a little more talent + a lot of luck) to inflation. These two equations might guide our estimations for inflation outlook in 2014. Here it goes:
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The baseline scenario for 2014 (2)
Fatih Özatay, PhD
03 December 2013
Even the FED does not initiate tapering on 17-18 December, the statements after the meeting might alter expectations on the timing and the magnitude of tapering. It’s time for an “early” baseline scenario. ‘Early’ because the scenario mainly depends on the steps the Federal Reserve (FED) will take and the FED will hold a meeting on December 17-18. It is a possibility that the FED will take the “feared” tapering decisions during its December meeting. Even if it delays the decision, the statements after the meeting might alter expectations on the timing and the magnitude of tapering. In that case I will have to update the current one with a “new baseline scenario.” Below are my assumptions for external conditions under the current circumstances:
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The BRSA’s decisions: Both timely and not (1)
Fatih Özatay, PhD
28 November 2013
These steps will further reduce GDP growth in 2014. From this perspective, the decisions were untimely. But when you neglect this significant delay, the decisions were in the right direction. The global crisis has proven once again that financial stability is essential. Before the crisis we believed that price stability would facilitate financial stability. But the crisis broke out in a period where the developed world enjoyed price stability and many developing countries attained radically low inflation rates compared to the 1980s and 1990s. Then it was understood that price stability did not guarantee financial stability.
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The baseline scenario for 2014 (1)
Fatih Özatay, PhD
26 November 2013
Taking into account the current vulnerabilities facing the Turkish economy, two external determinants come to the fore: the US and Europe. It is almost the end of the year. The most popular item in the coming weeks’ agenda will be how Turkey will perform in 2014 under “normal conditions.” Please don’t get me wrong when I say “normal conditions.” Although the world economy is and will be performing under abnormal conditions, the abnormal has to be considered the normal when doing prospective analysis. Perhaps I should stick to the usual “baseline scenario” expression to avoid confusion.
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