Fearing the inevitable
28 August 2012
In that case, Europe would fall into an even bigger trouble. If so, who will reimburse the damage done to the ECB? Why the European Central Bank (ECB) doesn’t initiate an operation similar to the overnight bond purchase the Central Bank of Turkey (CBT) carried out right after the introduction of the 2001 stability program? Why it cannot end the high interest rate phenomenon that was caused by high risk perception and has the potential to destroy the budget disciplining policies of countries including Italy and Spain?
What can the ECB learn from the CBT?
25 August 2012
The operation economist have for long been asking from the ECB resembles that the CBT had launched in 2001. One of the main pillars of the economic program initiated after the 2001 crisis was the operation to rescue and strengthen the banking sector. A significant part of the operation was targeted at public banks. During the 1990s, public banks extended loans to farmers or artisans, depending on the preference of the government, at rates significantly below the cost. Such support mechanisms following from natural political preferences should have been involved in the public budget. However, the loans were delivered via public banks, which therefore recorded high amounts of losses. In exchange for the loss, the Treasury did not transfer any funds to public banks. Therefore, public budget b
Lessons to learn from Turkey’s experience
23 August 2012
Expectations can severely impact the economic outlook even if economic fundamentals are stable. I mentioned that a multiple equilibria can arise depending on how expectations will be shaped: even if economic fundamentals, namely the key indicators including the budget deficit, current account deficit and public debt and monetary and fiscal policies do not change, the economy can move to a bad equilibrium as expectations deteriorate, or vice versa. If expectations are positive, the outlook of the economy can improve even if economic fundamentals did not enhance.
Finland adding fuel to the flames
22 August 2012
I am wondering if Finnish doesn’t have an idiom standing for “adding fuel to the flames.” I wish you all a happy Bairam, free of “bad equilibria.” The headline of a news story on the Daily Telegraph dated August 16th: “Finland prepares for break-up of Eurozone.” It was chosen in reference to some remarks by Finland’s foreign minister. And an interesting detail: On his desk, the minister had a copy of the Economist that had a picture of Angela Merkel, reading a fictitious report titled “How to break up the euro?”
Is there a third perspective?
16 August 2012
The key to international competitiveness is lowering production cost of goods and services, which requires productivity gains, technologic advancement in production and more skillful labor force. In Tuesday’s column I said that the fall in current account deficit can be assessed from two different perspectives. From the growth perspective, it was impossible to see the drop in current account deficit as an improvement as it was related closely to the fall in growth rate. From financing perspective, on the other hand, the easing of current account deficit, that is, the fall in foreign fund requirement could be read as an improvement. Unemployment still high
Which perspective we must embrace?
14 August 2012
We must see the easing of current account deficit, that is, the fall in foreign fund requirement, as an “improvement.” Balance of payments figures for June were announced. As expected, the fall in current account deficit continues. Cumulative deficit over the last twelve months was $63.5 billion, implying a drop of more than $10 billion year-on-year. The most remarkable development was that the non-energy current account balance, which had a deficit consecutively for the last 27 months, recorded a slight surplus in June. Therefore, non-energy current account deficit for the last twelve months decreased to $12 billion, almost $22 billion lower compared to the same period last year. Wheels of the economy turn slowly
What does China’s export performance imply?
11 August 2012
The policy Turkey initiated in order to boost exports has come back as an impediment to exports by pushing up costs. China’s weak export performance in July was the last link to the chain of bad news. The country’s exports increased remarkably weaker than expectations, only by 1 percent year-on-year. The chief reason, as suspected, was the weak recovery in the US and the absence of any in the European Union (EU).
Initial signs for the third quarter
09 August 2012
Though it is soon to judge, first signals for the third quarter imply that growth rate will not be substantially different from the first half. Yesterday came another data reinforcing the signs that growth in second quarter will not be much different than the first. In June, industrial output picked up by 2.7 percent year-on-year. Focusing on three-month output figures in order to cast away monthly fluctuations, we see that year-on-year growth in industrial output was 2.8 percent in the first quarter and 3.4 percent in the second quarter. Growth slows down
Stagnant growth in the second quarter?
07 August 2012
Even though the episode of slow growth that started in the first quarter of 2011 has ended by Q1 2012, the recovery has not started yet. Last week foreign trade statistics for June was announced. For the current quarter, the developments in both exports and imports are of great importance. Since the first quarter of 2011, the economy has been growing with a decreasing pace and we are curious if this trend continues or not. And if it does, will we be faced with a stagnant growth trend or a recovery? These questions are important for estimating the overall growth in 2012. Moreover, it is critical for identifying whether unemployment that has been stuck at 9 percent for a long time will continue its inertia.
Are we sure that inflation will be 6.5 percent?
04 August 2012
Even if the 6.5 percent year-end target is achieved, Turkey’s CPI will be relatively higher than those in Turkey’s rivals in international markets. Inflation figures for July came as no surprise: annual consumer price inflation increased to 9.1 percent from 8.9 percent in June. This matches with the estimations of both the Central Bank and the majority of economists. An unpleasant, if not worrisome, development is that the headline inflation index (l) started to demonstrate rigidity. Average value of the indicator was 7.9 percent for the last ten months, 7.7 percent for the last five and 7.4 percent and 7.5 percent respectively in June and July. CPI higher than rivals