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    The dangers of praising

    Fatih Özatay, PhD09 February 2013 - Okunma Sayısı: 774

    Industrial output growth was the lowest in the fourth quarter. Hence, GDP growth rate might be lower than expected.

    In December, industrial output shrank year-on-year by 3.8 percent. Just a month before, in November, industrial output grew by 11.3 percent, which was interpreted by many that “production having taken wings.” I am really astonished by some interesting comments on economic developments in Turkey. I am not talking about mistakes or something. Rather I am talking about odd comments. Maybe we can call this “praises” as in folk songs and literature.

    The following lines are from my commentary dated 29 January: “Last week two important data, capacity utilization ratio and real sector confidence index figures for January were released. As you might remember, I stated earlier that industrial output growth in November being high did not necessarily imply a strong recovery in the fourth quarter of the year. Other indicators, capacity utilization ratio for December among these, did not validate such recovery. Besides, the change in original series rather than that in the generally-misleading seasonally adjusted series, put into question the argument on a possible recovery.”

    Hence, the real picture becomes clear when you assess relevant figures and think through the performance within an error margin. Unless you are not interested in praising, of course... We saw the same attitude when CPI inflation figures for December were released. These surely give you an impression about the people who praise macroeconomic developments on no solid ground, but that does not matter to me. The reason why I am talking about this is that the ungrounded praises ruin the relative economic policy. People who take the praises seriously lose faith in the economy, disturbing expectations. If concrete facts were stressed and it was explained that there was no extraordinary positive inflation development in December, no one would read the inflationary outlook in January negatively. Neither the confidence in the economy would be damaged. The same holds for the industrial output figures, positive in November and negative in December.

    Yet there is a critical difference. I was of the opinion that the third quarter of 2012 was the worst concerning the GDP growth performance. Therefore, I estimated that in the fourth quarter would be a limited recovery and that GDP growth rate would remain around the third quarter’s 2.7 percent. Yet, industrial output growth in the fourth quarter was the lowest of the year: 0.3 percent compared to 2.7 percent. Hence, GDP growth rate might be lower in the fourth quarter.

    We shouldn’t become all pessimistic about the future of the economy. After all, it is December’s industrial output growth rate released yesterday. Upcoming figures are therefore more important. We must bear in mind that the confidence in the economy healed in December and January. There is an objective reason for this improvement: international financial risks have been in decline since September. This mood is expected to prevail if any disturbance does not come from Spain and Italy, which means the improvement in investment appetite would become relatively stronger. Despite the counter effect of the target to keep domestic credit growth rate at 5 percent, investments might increase at a limited rate given the growth of international finance opportunities. Also, it should be noted that low interest rates would increase the consumption of consumers who are not in need of consumer loans. Under these circumstances, 4 percent growth forecast for 2013 is still realistic.

    This commentary was published in Radikal daily on 09.02.2013