Growth will be below the potential if the external conditions reflect caution.

Have the fate of economies been bonded so closely to the steps that a couple of leaders and some politicians, who are obsessed with their opinions about the economy and have no intention for any compromise? The shape the economic growth and unemployment will take in a number of countries depends on two main factors. First is whether or not Obama's new plan that aims to reduce tax rates in order to reduce unemployment and to increase the spending on education and infrastructure will be adopted by the Congress. Second is whether or not Europe will take immediate measures to prevent the collapse? More concretely, will it issue Eurobonds and exchange with these the current debt of troubled countries? Or will the European Central Bank (ECB) guarantee to buy the bonds of troubled countries? Concerning a number of economies, both the approval of Obama's proposal and immediate steps by European leaders will be beneficial. This will improve the odds for recovery of large economies. Moreover, it will clear the dark clouds on the horizon and save time for creating bright days. That is all about a desire for bright days. However, experts think that these are least likely to be realized. It is argued that the highly polarized US politics, especially the extreme rightist faction of the Republicans, will not approve a program that aims to push up budget expenditures. Moreover, European leaders do not seem to have comprehended the developments. Germany states opinion against the Eurobond option. The only other option is the ECB's issuing money to purchase the bonds. But it is as clear as the day that a group in the ECB is against such practice. In brief, many believe that a fierce crisis is at the door. There of course exists a crisis already. What is expected is that the crisis intensifies and leads to the bankruptcy of major European banks and payment defaults in some economies. I addressed the repercussions of such an outlook on Turkey on Tuesday under "Scenario 2": economic contraction and escalation of unemployment as witnessed during the global crisis. I hope that this option will be ruled out.

The interesting option for Turkey would be the second pillar of the Scenario 1 that can be summarized as follows: the Fed introduces a quantitative easing (QE). The ECB eventually understands that providing guarantee for the bonds of the Eurozone states is the only option to take. In line with this, the ECB purchases bonds of these states and hence injected liquidity. As you might have noted, the scenario does not involve any demand-stimulating measure. Thus, economic recovery is either slow or absent. On the other hand, the Euros and dollars injected to the markets flow towards countries like Turkey which implies that the valuation pressure on the Lira will increase. This also implies that one major cause of the rapid credit expansion in Turkey (hot money inflow) will continue at a remarkable degree.

Slow recovery among developed countries as well as the upward pressure on the Lira affects Turkey's exports negatively. On the other hand, the Lira has recently depreciated considerably. In addition, the Central Bank of Turkey will most probably resist a potential pressure on the Lira. Under these circumstances, the negative impact of the slow recovery on exports might be eased to some extent. These circumstances, however, are what enable rapid credit expansion. But will credit demand increase regardless of the other factors? The shape investment expenditures and spending on high-cost durable goods will take depends on the changes in the confidence about the economy, which is closely related to possible developments in the US and Europe.

It is the confidence about the economy that will determine the most likely optimistic scenario (let's call it Ia) and therefore the possible growth rate in quarter for and in 2012. Growth will be below the potential if the external conditions reflect caution. And the difference will be positively related with the thickness of the smoke curtain.

This commentary was published in Radikal daily on 15.09.2011