What are the odds that the CB didn’t know about tax measures?
Fatih Özatay, PhD
25 September 2012
The probability that the CB took its latest decisions having no knowledge of the tax revenue raising measures to come is one in thousand, if not zero. The latest tax regulations can be addressed from different perspectives. But first things first: it was a step in the right direction in terms of fiscal policy discipline. The decision proves that Turkey has learned by doing what troubles loosening fiscal policy can cause, especially if on a continuous fashion. Efforts were made to put deteriorated budget balances back on track. This was the “positive outlook perspective.”
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Risks everywhere!
Fatih Özatay, PhD
20 September 2012
European stability funds will impose certain terms for applicant countries and will closely monitor if these terms are met or not. The other day, I stressed three risk factors ahead us: first was the risk that Spain and Italy don’t apply to the European stability mechanism. These countries need a mechanism that will enable borrowing at low interests until the economic policies in place deliver positive results. The latest decision by the European Central Bank gives them the opportunity. To benefit from this opportunity, however, they need to apply to the stability funds. From the beginning of the week to Wednesday morning, Spain acted ambivalently, which disturbed the markets. Ten-year securities of Spain started to be traded at higher interest rates due to the rise in the risk perception
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Let’s hope that international conditions do not deteriorate in 2013
Fatih Özatay, PhD
18 September 2012
Domestic economic policy will make a limited contribution to growth. All we can do is hope that international conditions do not deteriorate In the first three quarters of the year, growth rate was significantly below the potential, translated into rigidity of unemployment around 9 percent. Yesterday, unemployment rate for June was announced at 8.9 percent (seasonally and working day adjusted), which verified the rigidity once again. Then, what can be Turkey’s economic policy response to the slow growth?
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How is the atmosphere lately?
Fatih Özatay, PhD
15 September 2012
The recent upward trend in foreign fund inflows to Turkey will continue and maybe strengthen to some degree.
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German court has saved the Union
Fatih Özatay, PhD
13 September 2012
Recent decisions of the ECB and the German Constitutional Court have prohibited things from getting worse. The German Constitutional Court has dismissed the rejections against the European Stability Mechanism (ESM), but stipulated two conditions for the ESM to be signed into a law: before the signing by the president, Germany’s relevant liabilities will be capped (that is €190 billion which is the countries share in the ESM capital). The ESM will not have the mandate to change this limit, though it will otherwise operate independently. Second, ESM will have to share all information, even if confidential, with relevant officials at the German parliament. The ESM therefore can become operable by the end of the year (originally, the ESM was planned to be launched by the end of 2013 but later
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Growth rate significantly below the potential
Fatih Özatay, PhD
11 September 2012
Second quarter’s growth rate is substantially below the potential rate of 4.5-5 percent. During July, I speculated on growth rate of the second half of the year. Here is a section from the commentary dated July 17: “it appears that second quarter growth was not much different than the first concerning growth performance and that it might outperform the first only slightly.” And this one is from July 10: “In other words, the second quarter is hardly different from the first. All we can expect is a slightly higher growth rate; not relatively or evidently.”
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Self-criticism over gold trade
Fatih Özatay, PhD
06 September 2012
Temporary changes in gold trade overstate both exports and imports. Gold exports and imports became a hot issue once again after the latest foreign trade statistics were announced. So, on this occasion, I would like to fulfill my responsibility as a columnist and an academician, and address an issue I wanted to write on for long: earlier, I stated that gold exports and imports taking place in different quarters affected the growth rate. The TURSTAT President, however, stated the opposite last month.
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Inflation, exports and FED President Bernanke
Fatih Özatay, PhD
04 September 2012
From an academic perspective, Bernanke’s remarks on monetary policy were critical, but he didn’t say anything new from the perspective of financial markets. Goodish and baddish developments on the inflation front: the baddish one is that consumer prices increased beyond expectations in August, with annual CPI at 8.9 percent. The goodish news is about the l index that excludes certain goods and services in calculations in order to give a better picture of inflationary trends. Since February, the headline inflation measured on the basis of annual changes in the l index has been rigid at 7.8 percent. In August, the first sign of the breaking of the rigidity were seen: annual headline inflation rate decreased to 7.2 percent. The Central Bank alike many economists expect a significant fall in i
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Not back to the salt mines yet
Fatih Özatay, PhD
01 September 2012
Heavily discussing latest ECB and FED decisions, Turkey will come and go back to the salt mines. The school year is starting next week. Ankara will liven up soon. Economic developments and statistics that will double the joy are also around the corner: only a few hours after the time I am writing these lines, Federal Reserve (FED) President Bernanke will be speaking at the Jackson Hole. Will he announce a quantitative easing? On September 6th, the European Central Bank (ECB) will hold its awaited meeting. Will the ECB pull a rabbit out of the hat or continue empty talks as to how “the euro will survive.” Later on September 12th, Germany’s Constitutional Court will reach a verdict on Germany’s law against the European Stability Mechanism. Will the court grant an injunction or not? On Septe
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Trying to avoid the damage
Fatih Özatay, PhD
30 August 2012
Government bonds and collateral the ECB received for similar operations will decrease in value and thus the ECB’s capital will shrink. Right after the 2001 crisis, the Central Bank of Turkey (CBT) purchased large amounts of government bonds. This operation was possible mainly because the government back then had initiated the stability program which focused on fiscal and monetary discipline and planned a substantial and favorable change in the banking sector. The program was supported by a large IMF funs with suitable terms. The ECB asks for guarantees
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