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    The second half 2013 at a glance

    Fatih Özatay, PhD13 August 2013 - Okunma Sayısı: 783

    Industrial output growth in the first quarter was radically below the impressive rates in 2011. Yet, there is the bright side of the story.

    Industrial output figures for June were released yesterday. I will focus on the three-month averages to clear off monthly fluctuations in figures. In the second quarter of the year industrial output increased by 3.2 percent. This is significantly below the impressive rates in 2011. In fact, it is even below that in the first half of 2012, when per capita GDP growth was almost zero. Yet, there is the bright side of the story and here it goes:

    Year-on-year industrial output growth rates started decreasing in the first quarter of 2011. This trend pertained without interruption until the last quarter of 2012. Annual output growth rates were lower in each quarter than the previous one. At the end of this movement, output growth rate decreased from 14.9 percent in 2011 to 0.9 percent in the last quarter of 2012. Figures for the first half of 2013 suggest that the last quarter of 2012 was the worst one since early 2011 when industrial output hit the bottom and started surging onwards. There was a further improvement in the second quarter. Hence the first half of 2013 was better than the last half of 2012 considering industrial output growth.

    Yet the current pace of production is not satisfactory. This would not be a problem if we were sure that the upwards trend observed in the first half will continue. But there are a number of indicators implying that the second half of the year is not promising for growth. The ongoing tension in international financial markets affected emerging market economies adversely, and hence weakened the risk appetite. As a result, interest rates increased and lira depreciated considerably.

    The moderate improvement in industrial output in the first half of 2013 was in spite of stagnant private investment expenditures. We do not know yet the level of GDP and private sector investment expenditures in the second quarter of the year. But we know that sharp drops were observed in both in the last quarter of 2012 and the first quarter of 2013. Regardless of the private investment growth rate in the second quarter, the tension in financial markets and the resultant developments weaken risk appetite.

    Turkey’s FX liabilities are significantly higher than its FX receivables. According to the latest international net investment position figures and the relevant Central Bank report, Turkey was the worst among developing countries in the G-20 as of the end of 2012: the liability-receivable gap as a ratio to GDP was 53 percent for Turkey, far higher than the closest follower Mexico with 42 percent. In addition, the gap widened as of May (despite the month-on-month decrease from April to May). Moreover, 70 percent of the gap belongs to the corporate sector. The recent hikes in exchange rate drastically disturbed corporate sector balance sheets. This, coupled with reduced opportunities for borrowing implies that recovery in growth by increasing investments is unlikely.

    Non-gold export performance improved only slightly compared to 2012, and there is no reason to expect a change in the outlook. Then, it is quite unlikely for export performance to boost growth. The limited recovery in the first half of the year was enabled by increases in private consumption and public sector investment and consumption expenditures. Evidently, the current climate is not conducive to a private consumption boost. Under these circumstances, public sector consumption is the only thing we have. Concerning that, it is difficult to decide the course since it is under the discretion of the economic management. Let’s wait and see.

    This commentary was published in Radikal daily on 13.08.2013

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