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    Optimistic growth estimations

    Fatih Özatay, PhD12 January 2009 - Okunma Sayısı: 1513


    Estimations for global growth are continuously pushed down. For instance, IMF recently stated that the new estimations to be announced this month will imply relatively lower growth rates than the previous month. First estimations on the growth rate for Turkey in 2009 show that in the first half of the year the economy will contract. It is emphasized that the growth in the third quarter will be around zero and a rapid recovery will take place in the last quarter of 2009. The estimations for annual performance estimate a growth by 0-0.5 percent in average. Of course there are also colleagues that expect lower or higher growth rates. However, there is a consensus that it is a higher possibility that the growth rate will be below the given range.

    On the other hand, the models the estimations are based on are not clear. Some of the estimations are discretionary, i.e. are based on the experience of the people making the estimations, their ability to use the information set and the models they pictured. And some of the estimations are reached over quite simple models.

    However, I did not come across an estimation announced by public institutions that employ highly technical models taking into consideration the latest developments. The Central Bank is an exception with this respect, however, the bank only states that the gap between the potential growth rate and the growth rate to be realized. Of course, this is an important piece of information considering inflation; however, it does not tell the growth rate estimation and just says that it will be significantly below 5 percent.

    It is clear that all of the estimations are made highly under the impact of the information that an agreement with the IMF will be signed. This is apparent for two reasons. First, it is believed that the agreement will fulfill the need for external funding to a certain extent as well as reestablishing the confidence. Second, the successful experience following the 2001 crisis is also taken into consideration.

    These views are quite optimistic under the current circumstances. First of all, half of the January has passed and a new economic policy needs time to show results. Second, the IMF is offering remedies against the global crisis that are quite out of its traditional stance. However, in countries like Turkey, it is hard to implement those remedies as they are. For instance, it is a luxury for Turkey to increase public expenditures to a high extent. Instead, we have to focus on expenditure items that will stimulate domestic demand more. In short, we have a small room to maneuver.

    Third, no one knows when or how the depth global crisis will diminish. The crisis might take new forms. It is necessary to design different policies against possible new forms. However, the policy makers not only fail to take measures but also avoid acknowledging that the crisis will affect Turkey. This performance is not favorable with respect to designing policies against new forms of crisis.

    Fourth, current milieu is far different than 2001. In 2001, we had the chance to increase export volume rapidly as foreign demand was not problematic. However, now this is not possible. Foreign demand has come to a halt. Therefore, the production in the automotive sector, for instance, is steeply falling down. In short, it is not easy to increase the pace of growth by substituting foreign demand against the fall in domestic demand. Again different than 2001, there exists a significant fall in international fund flows. Another important difference can be observed with respect to decision-makers. Back then in 2001, due to the 'embarrassment' of being in crisis, the decision-makers were complying with the program sooner or later. They were highly afraid of the crisis. However, now, there is an incomprehensible attitude of arrogance. They might occasionally be afraid of things that might happen, but they did not happen yet; they are standing out there a probability. And this makes them passive.


    This commentary was published in Radikal daily in 12.01.2009