In that regard, the revised accounts, which now use 1998 as the base year (the previous base year was 1987), represent major improvements in the consistency of the data, enabling an international comparability of figures. The new gross domestic product (GDP) figures are in compliance with the European System of Accounts (ESA-95), a system deemed more comprehensive.According to the new methodology, Turkey’s growth rate of GDP in 2007 fell to its lowest level since the 2001 economic crisis. In this relative slowdown, Turkey’s fight with inflation has been the main factor. However, an interesting observation is that inflation has already become a worldwide problem due to adverse shocks on input prices such as in energy, oil and various categories of food. Because of this supply shock-driven inflationary process, overall world growth performance in major market economies slowed down in 2007 and is expected to be so in 2008 as well.
According to central bank researchers, the rate of consumer price inflation amongst the 60 major countries rose by 2 percent in 2002, while Turkey has become the most successful country among the 60 in reducing inflation by 1.3 points. However, the cost of such a cutthroat fight with inflation has been a slowdown in the overall economy.
However, as we consider the general situation in the world economic system we can underline three major notes. First, the growth rate in such an adverse situation is significantly above the world average and quite close to the emerging market average. Second, again comparatively speaking, Turkey’s success in fighting consumer price inflation was quite satisfactory in 2007. Finally, even if the major industrial economies, mainly that of the US, was hit by devastating uncertainty created by the mortgage crisis, Turkey, for the first time in recent history, is strongly resisting and managing to keep a positive growth profile.
After mentioning these ramifications, let me come back to this year’s growth figures. The Turkish economy grew by 4.5 percent in 2007 and 3.4 percent in the fourth quarter of last year, lower than stated annual and government targets.
According to the explained data, the nominal GDP increased to YTL 856.4 billion ($658.8 billion). Moreover, per capita national income reached $9,333 in current prices. In 2001 Turkey experienced a severe crisis, and the economy shrank by 5.7 percent. After this crisis, Turkey saw uninterrupted growth for 24 consecutive quarters, but the economy has been shrinking since 2004 due to mainly global economic factors.
When we look at the developments at the level of major sectors, it can be seen that a drought in 2007 caused a 7.3 percent contraction in the agriculture sector. Second, the manufacturing industry also slowed, seeing a growth rate of 5.4 percent last year, while the growth rate was 8.4 percent the preceding year. Another important sector is mining, and the growth rate here remained at 8.1 percent. The construction sector, which had seen an 18.5 percent growth rate in 2006, grew by only 5 percent last year. The retail/wholesale sector, which had the second largest share in national income after the industrial sector, grew by 5.5 percent last year, down on the previous year’s growth of 6.3 percent. Private sector investment grew by only 2.7 percent.
In our view, as a solution to recent developments, the following measures might be helpful: 1) In terms of short-term-oriented monetary policies, the inflationary target of 4 percent for 2008 should be revised upward, interest rates should be lowered and domestic demand should be boosted so as to revitalize the overall economy. 2) The Second Generation reform schedule should be aggressively implemented without any major delay. 3) The EU membership process should be taken more seriously and the process must be sped up. 4) Anti-democratic, corrupt and illegal organizations that have filtered into the state apparatus must be removed, and the state must be reformed on the basis of transparency, accountability and eligibility based on fair competition.
