Is Turkey’s sustainable growth rate so far assumed to be at the 4-4.5 percent interval declining?

Gross domestic product (GDP) figures for 2012 were released yesterday: GDP growth rate decreased to 2.2 percent in 2012 from 8.8 percent in 2011. Indeed, this came as no surprise. In the late 2011, I discussed in an op-ed series the macroeconomic indicators for 2012 under different scenarios. The most reasonable one estimated 1 to 3 percent GDP growth for 2012. When GDP figures for the first quarter was released, I estimated year-end GDP growth at the 2.2-2.3 percent interval, in the light of the capacity utilization, real sector confidence, credit growth, industrial output growth and export figures. And here are some observations on the GDP figures:

First, the unsustainably high growth rate recorded in 2011 was lowered in tandem with the commitment of the economic management. But the realized growth rate was below expectations.

Second, current account deficit was 6 percent of the GDP in 2012. Although the rate decreased substantially from 9.7 in 2011, it is still high. “High current account deficit – low growth” is not a familiar phenomenon for us in Turkey. This bitter duo is worth thinking through. The million-dollar question: is Turkey’s sustainable growth rate so far assumed to be at the 4-4.5 percent interval declining?

Third, private investment and private consumption expenditures decreased in 2012. The rate of decline in private consumption was 4.5 percent. More important is that, the rate of growth of private investment expenditures went downhill during the year. In the fourth quarter, the worst one with this respect, private investment expenditures decreased by 9.2 percent.

Last but not least, we are still uncertain whether recovery has started in the first quarter of 2013. Some indicators suggest that the quarter was no different than the preceding ones: capacity utilization ratios have been decreasing year-on-year since the early 2012, though the rate of decline was small in January and March. Industrial output figures were in parallel with the capacity utilization ratio. Real sector confidence index retained the same trend throughout 2012 and demonstrated a moderate improvement in January and February. This was reversed in March, however. Real sector confidence index is insightful to private sector investment expenditures. On the other hand, output of automotive sector continued the decline in January and February.

There also are indicators signaling the start of a moderate recovery: credit growth rate was 15 percent in the second half of 2012. The rate reached 22 percent during the first three months of 2012. Moreover, except for the last weeks, interest rates stood below the levels in the second half of 2012. During January and February, non-gold exports and non-gold and non-energy imports increased beyond the averages recorded in 2012. And here are some adverse external developments: at the end of 2012, I discussed under different scenarios how macro-indicators might evolve in 2013. I argued that 4 percent was a realistic growth target under the current economic policy, provided that circumstances in Europe do not worsen and the US solves the fiscal cliff challenge. Due to the developments in Cyprus, Europe has gone into some trouble, which caused capital inflows to drop.

The picture summarized here implies that even if there was any recovery in the first quarter, it was quite limited. Yet, I still believe that 4 percent growth rate is achievable, of course under the current conditions. If troubles of Europe pertain (Italy might soon take the lead from Cyprus, for instance) 4-percent growth will be in jeopardy.

This commentary was published in Radikal daily on 02.04.2013