Prospects bleak for global recovery, Babacan says

Speaking at the Eurochambres Associate Members Committee meeting in İstanbul yesterday, Babacan stated that a lack of concrete plans by developed nations to reverse stimulus plans and an increase in fiscal deficits was a source of anxiety for the increasingly externally dependent Turkey.

Regarding a recovery in global markets, Babacan stated that although such a recovery is currently under way, it may not be self-sustaining. “There is a slow recovery in the markets right now because of the extraordinary stimulus plans by developed nations, but this recovery didn’t come about own its own and is not accelerating by itself, either,” said Babacan.

He also pointed out that many governments enacted measures to prop up the financial sector along with fiscal as well as monetary support packages, but questioned whether reversing them would mean the recovery would falter. “There are serious uncertainties about this, and right now we are talking about a global recovery that has yet to accelerate of its own accord,” Babacan noted.

Babacan also stressed that the recovery has also spread unequally among regions, stating that “Asia is growing rapidly, much faster than the US and Europe. The region that concerns us most, Europe, was more deeply affected by the crisis and will take longer to recover.” Europe is Turkey’s largest export market.

Regarding the dismal state of public finances, Babacan noted that the average budget deficit in developed countries was only 1 percent in 2007 but jumped to a worrisome 9 percent last year. He also added that public debt stock increased from 70 percent of gross domestic product (GDP) to nearly 90 percent of the GDP on average in developed nations. “In addition to this, there are no set plans on how these deficits will be controlled and when they will start inching downwards. … The lack of plans is a serious source of anxiety for us.”

Speaking about the global banking sector, Babacan noted that the problems in the sector which arose due to the global financial crisis are long-term problems and that it will take some time before their operations are back to normal. Regarding the recent instability in EU economies such as Greece, Babacan stated that “some countries will have to make hard decisions today. Decisions not made today will inevitably become bigger problems, and there will be a need for even weightier prescriptions to cure them. So it’s important for countries to make the tough decisions as soon as possible.”

He also stressed that the demographic makeup of Europe would not help their economic recovery, as populations were growing older and the proportion of young people was decreasing, leading to a smaller able workforce by 2013. “The severity of this issue will not confront us 10 years down the line; it will do so in only a few years from now. Europe’s growth potential will have dropped by then compared to the pre-crisis period, and their growth rates will plateau.”

Turkish Union of Chambers and Commodity Exchanges (TOBB) President and Eurochambres Deputy Chairman Rifat Hisarcıklıoğlu, who also spoke at the event, criticized the customs union with the EU, stating that the visa and transportation barriers set up by the EU meant that trade was far from free.

He stressed that the customs union called for free trade between signatories but still maintained strict visa requirements for Turkish businessmen attempting to export to Europe. “It’s difficult to understand a system that says all trade within the union should be free but sets a strict visa barrier for those who want to export to the EU.” He also mentioned that quotas on the number of trucks carrying goods into the EU was also a hypocritical move with regards to the union’s vision. “How is this a customs union if we can trade freely but there is a limit on the number trucks entering the EU?” Hisarcıklıoğlu asked.