Growth difficulties continue this year

It looks like the trouble in growth rates that began in 2014 will extend into this year also, as the January industrial production data that was announced at the beginning of the week was quite lower than expected.   

In the first month of the year, industrial production shrank 2.3 percent, despite the 1.7 percent annual increase expectation. When seasonally adjusted, the annual fall becomes 2.2 percent.

Industrial production increased 2.5 percent on an annual basis in the last quarter of last year; while throughout the year, growth was 3.6 percent. It is definite the negative effect of weather conditions has been a factor in the drop of production in January. However, when seasonally adjusted, the drop seems to be 1.4 percent. The decline in the last quarter of the year was 0.7 percent. Analysts say the average industrial production increase is 0.4 percent, which is the lowest since 2009.

As a sum, the industrial production numbers shows us the low growth rates of last year have created an expectation they will also continue this year. 

At the end of this month, the 2014 growth figures will be disclosed. It is estimated the annual growth rate will be under even the revised figure of 3 percent. The figure to be announced on March 31 is expected to be 2.6 or 2.7 percent.

Not only in the decline in industrial production, but also the decline in agricultural production was effective in lowering the 2014 growth rates. Since there are no signs yet for the agricultural data of that year, it is very difficult to make a serious estimation for the overall growth. However, we need to say the decline in industrial production has disrupted the growth hopes of that year.

Election economy option 

The fall in growth rates is a situation that needs to be analyzed from several angles. Before anything else, in terms of foreign capital, the fact that the high growth story has ended is likely to create trouble in the search for new resources.

The high course in the foreign exchange rates will definitely limit importation but in the case that there is capital outflow, despite the decreasing foreign currency demand, the exchange rates may continue to rise.

The most important inconvenience in terms of growth is definitely foreign demand. The Russian crisis, the situations in Iraq and Syria and the delay in the recovery of the economic situation in Europe have begun to seriously affect Turkey’s exports negatively. There does not seem to be any significant reason for a recovery in exports in the short term.

This decline in growth rates is also a situation that needs to be reviewed in terms of the elections scheduled for three months from now. The only way for the government to increase growth rates while the foreign demand has gone down is to revive domestic demand. In other words, even though this ruling party has not done it before, this time there is the risk of implementing an election economy.

In the case of an election economy and the deterioration of fiscal discipline, then the risk perception for the future will further increase; the danger of maintaining economic balances will emerge.

If low growth pushes the government to an election economy, the picture will become even graver.