Growth rate for the first quarter of 2009 will be announced this Tuesday. The announcement will not involve anything new. Everyone knows that the figures to be announced will indicate a significant contraction in the economy. What is more, expected rate of contraction is a two-digit figure. Therefore, the important thing is what is going to happen from this point onwards.

We roughly foresee what will happen in 2009. On my article dated March 9 I proposed a pessimistic estimation interval for 2009 growth. In the light of the data available back then, rate of contraction in 2009 would be between 6.5 and 8.5 percent unless new economic measures were introduced. Apart from this, there were scenarios where confidence recovered slightly and real credit volume level would rise as of the second half of the year. I am talking about the No 3 and 4 scenarios mentioned in the article of March. Under current circumstances, it is possible to say that we are standing at a point in between those two scenarios. Therefore, rate of contraction in 2009 can be estimated on the basis of No 3 and 4 scenarios at 5.2-6.9 percent interval. The estimation proposes a recovery of 1.5 points when compared with the situation under the basis scenario constructed in the light of data available in March and under the assumption that no measure will be introduced.

The estimations announced in that article were driven with the help of a model. So, it will be wise to use the same model with current data. Particularly, some economic measures to build confidence were implemented, and confidence level went up. Moreover, tightening in credit volume was eased through public banks. Though the implementation process concerning the credit guarantee system is not defined yet, the law to constitute the legal basis for the said system has been put into force.

When the model is run in the light of the new information, estimate for contraction in 2009 appears around 6 percent. In short, a slightly more optimistic figure is obtained in comparison with the basis scenario which was built in March on the assumption that no economic measure will be implemented. The new estimate is also in line with those reached under scenarios which were as well built in March and which can be considered in line with the current condition.

Export is among important determinants of growth rate. The estimates I have given above are highly responsive to exports. And so far, there is not much hope considering the export performance. According to the data by the Assembly of Turkish Exporters, the lowest rate of contraction in exports when compared to the same month in 2008 was in January with 28 percent contraction. And the highest rate of contraction was recorded in May with 40 percent. The downward trend continued also in June. Over the first 25 days of June, exports decreased by 32 percent then the same period last year.

It is now too late for us to change the rate of contraction in 2009 at a considerable degree. There is no change in external conditions with this respect. Among two important factors that affect the pace of growth of the economy, first was the volume of foreign capital flowing in the country. I recently shared the new estimates of Institute of International Finance.  There is no positive development in the 2009 estimates for capital flows toward countries like Turkey; rather there exists deterioration.  The second external factor was the change in foreign demand; and it will not recover in the rest of 2009 as well. Now, it is necessary to comment on 2010.

It is wise to make estimates about 2010 keeping in mind that in 2011 elections will be held. Soon, I will propose estimates for 2011 driven from the model I mentioned. But for now, I have to say one thing. Even if you do not move a muscle following the striking contraction in 2009, the economy does not contract further. It is the phenomenon they call the 'basis' effect. The basis, i.e. 2009 is so bad that a slight improvement in export performance, a tiny upwards trend in capital movements or a small rise in the level of credits banking sector extends will lead to a positive growth. And it appears that the said growth will not be that small.

This commentary was published in Radikal daily on 29.06.2009