Slowing growth affects Turkey’s economic balances

The slowing in growth rates has started showing its effects on all other economic equilibriums, with both the negative and positive effects of the slowdown on equilibriums gradually increasing.

If we start with the latest data, we see that the unemployment rates announced at the beginning of the week have again hit double digits. Compared to both the same month last year and to the previous month this year, August unemployment rates increased, reaching 10.1 percent. This, of course, is the most serious negative consequence of the slowdown in growth rates.

Even though a small movement of growth in the last quarter of the year is expected and, in connection with it, small drops in unemployment rates are expected, it is also predicted that next year’s growth and unemployment rates will remain high.

One of the positive results of the slowing of growth can be seen in Turkey’s balance of payments. The current account deficit has started declining to more reasonable levels with the decreasing growth rates and shrinking domestic demand. In addition, the serious fall in world oil prices has started becoming another important factor positively affecting the current account deficit. If oil prices maintain this course, it will also be positive for the current account deficit figure. 

We can say that inflation is the balance figure that has been affected the least by the slowdown in growth rates. Inflation rates, despite the slowing growth rates and shrinking domestic demand, are following a course at the edge of double-digits, at around 9 percent. We see the effect of rapidly increasing foreign exchange rates here. Low oil prices will also have a positive effect in inflation, but the uncertainty in the exchange rates is still a factor threatening inflation.

Recovery in demand 

Meanwhile, the latest growth developments have also shown their effects on Turkey’s budget deficit. While the budget had a 3 billion-Turkish Lira deficit last October, despite the increasing interest rate expenditures, the budget had a primary surplus of 4 billion liras in October 2014 with the restrictions in primary expenditures.

The fall in growth rates has shown itself especially on the income side. While the total tax revenues compared to the same period last year dropped by 1.5 percent in real terms, taxes taken from income dropped by 6.3 percent in real terms. While expenditures increased more than targets, this year the high level of dividend incomes from public institutions played an important role in maintaining budget discipline.

In other words, the developments in growth have affected the quality of the budget, if not the deficit.
However, it can also be said, based on data for the month of October, that a new recovery has started in domestic demand.

While October’s imports figure is expected to be around $13 billion, the foreign trade deficit is predicted to be around $6.5 and $7 billion.

In other words, when growth of around 3 percent occurs, as it does today, problems decrease, but this rate is still not enough for Turkey. Once more, we can see that structural measures are a must for Turkey to increase its sustainable growth rates.