Even a limited downturn in Europe might risk 4 percent growth in Turkey.

Industrial output figures for November will have been announced when you read these lines. Expectations are that industrial output will demonstrate a remarkable year-on-year increase. There are two factors shaping the expectations. First, there was a long holiday in November 2011 and the number of days worked being higher in November 2012 might have enabled a substantial increase in industrial output. Second, the economy might have hit the bottom in the third quarter and started recovering thereon. The former is beyond doubt. Whether the latter assumption is realistic, however, is yet to be observed. Capacity utilization and real sector confidence index series do not provide solid evidence on any recovery. Yet, we can argue that the fourth quarter will not be worse than the third. We might enjoy a moderate, if not a remarkable, recovery. And we need more observations to decide how moderate this potential recovery was.

You might remember that I presented four key assumptions before estimating the economic outlook in 2013: the US overcomes the fiscal cliff. Circumstances in Europe neither ameliorate nor worsen. World growth improves moderately compared to 2012, in line with the IMF forecasts. Domestic credit growth rate remains around 15 percent as desired by the economic management. Within the context of these assumptions, I estimated that growth rate in 2013 will be 4 percent or slightly above compared to 3 percent expected for 2012.

Uncertainties prevail

The first of these was realized partially: The US overcame the fiscal cliff so far while the solution of certain issues was delayed for two months. Last weekend, a relatively pessimistic comment came from an expert on Europe (C. Wyplosz, 4 Ocak, www.voxeu.org). This article puts into question my second assumption. In a nutshell, Wyplosz argues that even though important steps were taken in 2012, decisions on the most critical challenges are yet to be made. He emphasizes that unwilling politicians were over-relaxed by the European Central Bank’s decisions that saved the day but left fundamental problems intact. The problems he enumerates are quite complex and cannot be solved easily. In consequence, he stresses that things will worsen a bit more before Europe can eventually recover and that this will be seen in 2013, to hope for the best.

If he proves right and things worsen in Europe in 2013, Turkey will evidently be affected negatively. It is hard to estimate the magnitude; it depends on the extent to which circumstances in Europe worsen. And even a limited downturn in Europe might risk 4 percent growth in Turkey. In a nutshell, uncertainties concerning the global economy prevail.

This commentary was published in Radikal daily on 08.01.2013