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How shiny is Turkey’s economy?
If the below table is considered an indicator of how Turkish economy shines like a star, I am really concerned about the future; because if so we are toast!
I am sure you remember the five countries which were expected to be hit the most by the Federal Reserve (FED) decisions: Brazil, Indonesia, South Africa, India, and Turkey. It is quite informative to compare these five countries on fundamental macroeconomic indicators especially when you add a “control group” to the picture. Mine will include China, Korea, and Russia, that is, the BRICKs not among the “Troubled Five”.
Table 1 below gives average inflation, current account deficit, savings rate, public debt ratio, and unemployment rates for these countries in 2013. Current account deficit, savings, and public debt are given as percentage of GDP. The data is from the IMF’s World Economic Outlook database. The figures mainly reflect the estimates revised in October 2013 while I have revised those for Turkey further.
Some points worth noting are: first, all control group countries have current account surpluses (demonstrated by negative figures) and enjoy lower unemployment rates compared to the Troubled Five. Second, the control group generally performs better than the Troubled Five concerning all studied macroeconomic indicators.
The details concerning Turkey are even more striking. Do you remember the common argument: “the Turkish economy would have shone like a star if the country had not gradually steered towards an authoritarian regime.” Among the Troubled Five, Turkey by far has the highest current account deficit, that is, the highest foreign borrowing requirement. Second, it has the lowest domestic savings rate, which is insufficient to fulfill even a lousy level of investment. Lousy, because Turkey together with Brazil and South Africa has the lowest savings rates on the list. Indeed, all of the three countries have lower investment rates than the emerging country average.
Higher investments, together with a skilled labor force and technology, mean higher future GDP. Although education is not covered in the table below, I have quoted figures showing the poor performance of Turkey in education in comparison to the rest of the list. Turkey’s population is composed of seventh-grade dropouts. So, if the below table is considered an indicator of how Turkish economy shines like a star, I am really concerned about the future; because if so we are toast! The severity of the problem unfortunately depends on the level of foreign borrowing because, to repeat, of the low domestic savings rate.
For those who insist to look at the bright side, there of course are some details for consolation: for instance, Turkey does not have the highest inflation; it is second to India. It holds the second place also in unemployment rate. What if it was as high as that in South Africa, God forbid! And, public debt is pleasingly low, Turkey is second to Indonesia.
This commentary was published in Radikal daily on 11.01.2014