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    Would Turkey get the rating upgrade anyway?

    Fatih Özatay, PhD17 November 2012 - Okunma Sayısı: 735

    If unemployment rate were 10 or 10.5 percent today, would Fitch still upgrade Turkey to the investment level?

    Many developed countries have still been fighting with the consequences of the financial crisis. There is no doubt that chief among this is the hike in unemployment. IMF recently released the latest estimates for unemployment rate in 2012 in developed countries.

    Here are the percentage ratios: Eurozone: 11.2, US: 8.2, UK: 8.1, and Japan: 4.5. The ratios within the Eurozone are quite diverse: 5.2% in Germany, 10.6% in Italy, and 24.9% in Spain. Japan is not alone in the league of low unemployment in Asia. Average unemployment rate for Hong-Kong, Korea, Singapore and the Taiwan zone of China, which the IMF categorizes as the Newly Industrializing Economies of Asia, is as low as 3.5 percent.

    The “normal” rate of unemployment is evidently different in each country. The current unemployment rates in Japan, emerging four in Asia and Germany are close to their normal rates of unemployment. Let me put aside the “extreme” case of Spain. But unemployment rate is above the normal levels in the UK, Spain and the US, too. The committee members at the Fed, for instance, state that the normal unemployment rate for the US, the latest economy of the world, would float between 5.2 percent and 6 percent.

    On Thursday, the TURKSTAT released labor statistics for August. The rigidity in unemployment seems to continue. The only positive development is that the rigidity ongoing since fall 2011 is slightly lower compared to the pre-crisis period (2005-2007). Yet, it is a fact that Turkey’s unemployment rate – non-agricultural and total – is rigid at its current level. The table below shows the rates for the examined periods. And the graph shows seasonally adjusted unemployment figures since January 2005, the horizontal line separating the period of analysis.

    Here comes the first question: if unemployment rate were 10 or 10.5 percent today, would Fitch still upgrade Turkey to the investment level? I am aware this is a speculative question, but I will try to answer anyway. And I would say, yes. Would Fitch upgrade Turkey if current account deficit or foreign debt were higher? My answer to that is no. And what if current account deficit and foreign debt were halved and public budget balance was sound but unemployment rate becomes rigid at 10.5 percent? We would still get the upgrade, right?

    Anyways, here is the moral of the story: credit rating upgrade does not necessarily imply a welfare gain.


    (Average, %)




    January 2005 – December 2007

    September 2011 – August 2012





    Source: TURKSTAT

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    This commentary was published in Radikal daily on 17.11.2012