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    Risk of negative growth as well in 2010

    Fatih Özatay, PhD16 April 2009 - Okunma Sayısı: 1238


    A step in the right direction is taken after a significant delay. Forecasts about macroeconomic indicators were revised and a more realistic picture was presented. What would have happened if the forecasts were not changed as done before the elections? Announced figures are already unfavorable. However, in case of such insistence, as the question "Do they know what they are doing" will gain prevalence and the confidence in the administration will be further eroded, more unfavorable figures would have been realized.

    Growth rate is announced at minus 3.6 percent and budget deficit is forecasted as 5 percent of GNP. It is stated that in parallel with 3.6 percent contraction forecast, current account deficit will be eased considerably. Among the announced figures, only unemployment rate was the unrealistic. 13.5 percent unemployment rate for 2009 is quite optimistic.

    As you might remember, I presented the 2009 forecasts stated in a study we carried out at TEPAV (report can be found at According to the study forecast, if no measures were taken and the economy was left alone on its course, and the exogenous conditions as of the end of February do not change for two years, Turkish economy would contract by 5.5 percent. If additional measures were taken; i.e. an IMF agreement was signed, loan guarantee mechanism was effectuated and financial aid to groups with high propensity to consume was given to enhance demand for domestically produced goods, the forecast became less pessimistic and economic contraction was limited at 3.6 percent.

    Under the framework of TEPAV forecasts and as the statements that IMF agreement will be signed and loan guarantee system will be effectuated are considered, 3.6 percent contraction forecast is not unrealistic at all. I am not sure whether and at what level measures to stimulate domestic demand will be implemented. If sufficient measure cannot be taken in this area due to budget constraints, there is no doubt that the rate of contraction will be higher. It varies between 5.5 percent contraction we forecasted for the case of 'inertia' and 3.6 percent.

    If at this step, we neglect the uncertainly about the measures pertaining to domestic demand, growth rate will be shaped mainly by two elements that we cannot control: As I examined on my column Monday, these elements were foreign demand which is the main determinant of Turkish exports (rate of growth for countries importing from Turkey) and whether or not the turbulence in the global financial system will end.

    Again due to these elements, growth forecast for 2010 (3.3 percent growth) might also turn out optimistic. Radical steps like Sweden took in 1990 or like Turkey took after the 2001 crisis cannot be observed in the global financial system. Moreover, real sector does not reflect indications of recovery.

    It is doubtless that, since production level in the previous year was so low, even a slight recovery in production improves growth rate.  This is called 'basis effect' (if your production rises from 100 to 120 vehicles, growth rate is 20 percent. But if your production increases from 50 to 80 vehicles, growth rate is 60 percent) and it will certainly have a role, however, if the mentioned two endogenous elements do not move in positive direction, we can encounter the risk of negative growth in 2010. Though, this risk does not appear as a strong one for now. We need more data to make a certain evaluation.


    This commentary was published in Radikal daily on 16.04.2009