Though growth rates have decreased remarkably, there appears a soft rather than the dreaded hard landing.

Gross domestic product (GDP) for the first quarter of 2012 was announced yesterday: annual growth rate in Q1 was 3.2 percent. Quarterly GDP growth rates since Q1 2011 were as follows: 11.9 percent in 2011Q1, 9.1 percent in 2011Q2, 8.4 percent in 2011Q3, 5.2 percent in 2011Q4 and lastly 3.2 percent in 2012Q1. Though growth rates have decreased remarkably, there appears a soft rather than the dreaded hard landing. Actually the landing was quite soft as I denoted above. 

Foreign demand was the driving force

Here are some striking details: first, the output side of the GDP suggests that the state of affairs were in harmony with forecasts in all sectors but agriculture, which grew by 4.6 percent. Second, as statistics so far have implied, in the first quarter domestic demand grew at a sluggish 0.9 percent. Private sector consumption expenditures generally correspond to 70 percent of GDP. In Q1, private sector’s consumption expenditures showed no year-on-year change while the sector’s investment expenditures increased by a weak 1.6 percent, mainly driven by investments in the construction sector. The rise in machinery and equipment investments were rather limited. Annual growth of public sector consumption and investment expenditures was stronger. Third, while domestic demand was fragile, foreign demand appeared to be the driving force of GDP growth in Q1: the latter contributed with 4.6 points. This was enabled with the substitution of the shrinking European market with alternative markets, which prevented a fall in export performance. 

Growth might go beyond 4 percent

Seasonally and working day adjusted GDP figures maintain that growth rates were extremely low in Q4 2011 and Q1 2012: volume of economic activity moved almost horizontally. On the other hand, adjusted statistics must be handled with care; as I have emphasized several times, they can be misguiding depending on the method used.

So, the conclusion: first quarter’s growth was stronger than I expected. For some time now, I have been referring to recent data which implies that volume of economic activity in quarter two might be not much different than what it was in quarter one - data which implies that the horizontal movement in economic activity has ended earliest by May. If so, Q2 growth also will go beyond estimations, at least mine. Turkish economy is expected to start recovering by the second half of the year, if the global markets do not go in another episode of turmoil driven by Europe. In a nutshell, it is not a higher possibility that the 2012 growth catches and even goes beyond the official estimate in the Medium Term Program, 4 percent.

This commentary was published in Radikal daily on 03.07.2012