The two major factors behind high risks were a steady growth in Turkey’s current account deficit along with double-digit consumer price indices. The country became distanced from these two risks following a sudden stagnation in the markets last year. In such an atmosphere, repaying debt and maintaining financial stability became the two new priorities of the economic administration. Such a change eventually brought about high unemployment in Turkey.
The likelihood of countries escaping the negative impact of the 2009 crisis literally depends on their ability to maintain financial stability and economic growth. A Turkish adage on the appearance of young women says that “a little weight hides a great deal of shame.” One could make a similar metaphor about the economy. A little growth hides a great deal of problems in the economy. But no one is talking about Turkey making progress at the moment. The country has managed to maintain stability both in the financial and public sectors but has left behind many countries when it comes to its speed of growth.
The Turkish economy expanded by more than 6 percent in the final quarter of 2009 over the same period a year before. Growth in the first quarter of this year over the same period of 2009 was even higher: 11.7 percent. This latest figure makes Turkey the fastest-growing economy in Europe and the Organization for Economic Cooperation and Development (OECD). Furthermore, it posted the second-largest economic growth in the world after China in the given period.
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However, we need to once more ask two questions about Turkey. The first question is, how effective will fast growth in the economy be in reducing unemployment in Turkey? As is known, we failed to halt the increase in unemployment between 2002 and 2008. Many observers have raised the point that growth did not translate into lowered unemployment. Second, Turkey for a long time could not enjoy growth in its economy because economic growth sent signals of an increase in its current account deficit and inflation. I have since the beginning of the year been discussing how Turkey could enter a crisis of its own while it leaves a global crisis behind. Looking at the current picture, one can assume that my forecast is unfortunately coming true. (For my economic forecasts, see the Independent Association of Industrialists and Businessmen’s Association’s [MÜSİAD] 2010 annual economic report.)
I earlier predicted that economic growth would hover at around 4.5 to 5 percent while the current account deficit would reach $30 billion and the rate of inflation 8 percent for this year.
Contrary to recent revisions made by the International Monetary Fund (IMF) and the OECD, I am making no changes to my forecast. Turkey’s current account deficit skyrocketed by 236 percent in the first five months of the year over the same months of 2009 to hit $17.4 billion. The increase in the current account deficit was 84.5 percent in May as compared to May of last year. The increases in the trade deficit and net service revenues were two major factors behind such bad results. The imbalance in trade with such countries as the US, Russia and China is one reason for the high current account deficit.
Turkey’s trade deficit basically stems from a lack of necessary investment in the energy, petrochemicals, iron and steel, technology and finance sectors. The country needs to focus on measures to address this problem. Some of the recent incentives provided to attract foreign investors have been effective to this end.
One could also underline the impact on inflation of input cost along with the high real exchange rates and the current account deficit. However, Turkey switched to a floating exchange rate system to keep these effects under control. The only solution will be seeking an economic transformation that will bring high value-added and efficiency in the long run.
