Turkey's economy did not grow in the first quarter compared to the previous quarter. Last Thursday I made an assessment about economic growth for the second quarter as well as the rest of the year. The data at hand suggested that the economy will grow quarter-on-quarter. This "estimation" was based on the real credit growth, export recovery and the positive developments with respect to the capacity utilization ratio.

I put the estimation in parenthesis since we have already left behind the second quarter of the year. It is quite awkward to state "estimation" about the past. However, the dating come up from the behind, together with the curiosity about when the impacts of the crisis will disappear brings this "funny" situation. The purpose of the mentioned commentary was in fact to assess 2011 as well as 2010; but the second quarter of the year also had a major place in the assessment.

Industrial production data announced this week has strengthened my growth "estimation". In May, adjusted industrial production increased considerably month-on-month: 1.9 percent. Thus, average industrial production for April-May stood 1.6 percent above the average production in the first quarter of the year.

Figure 1 shows the changes in the capacity utilization ratio and industrial production since 2001. The latest figures for the capacity utilization ratio belong to June. Adjusted industrial production figures are given in the vertical left axis. Capacity utilization ratio figures are unadjusted and given in vertical right axis. The graph reveals that despite the high growth pace compared to the previous period, we yet could not regain the peak production level before the crisis. The same applies also for the capacity utilization ratio figures.

A warning about my "estimation" about the past: It is expected that industrial production index is a good indicator for the pace of increase in the gross domestic product. But in the recent years the correlation between the two indicators has been misguiding the commentators. I have talked about one of the reasons already in this column which I will not repeat. But let me note that since my "estimation" about the past is backed by the real credit volume, export and capacity utilization ratio figures, this is least likely to be misguiding.

And a reminder: There exist convincing views that the budget measures introduced by the European Union countries will limit their growth. As we have already discussed, this has the potential to affect Turkey's exports and therefore production negatively. In addition, consumer confidence and the corporate sector confidence tended downwards in the recent period. On top of this add the set of elections scheduled in the near future. We must therefore expect slow growth in the rest of 2010 and unprecedentedly high growth in 2011.

Let me remind one another point to those who approach the issue as "supporters" and say "See how we have broken the growth records". You have to be careful particularly about 2011: If you do not read the developments right, you cannot introduce the necessary measures. Of course there is nothing to say if you have an unshakeable belief that the markets are almighty, that markets solve the problems without requiring any intervention and thus that there is no sense in designing and implementing economic policies against the economic phenomena at hand. But you should note the circumstances those of that belief have faced during the economic crisis.

Figure 1: Industrial production and capacity utilization ratio: 2007 January - 2010 June (Index)

This commentary was published in Radikal daily on 11.07.2011