Growth figure both rejoices and scares

Growth figures for the second quarter of 2013 that were announced yesterday happened to be quite higher than expected. Normally, when the growth rate is this much more than expected, it should cause a huge joy, but, the fact that growth is totally connected to the increase in domestic demand has troubled administrators and economists. 

The expected growth rate for the second quarter of 2013 was around 3.5 percent, but it was announced as 4.4 percent. However, when the growth rate of the first quarter was revised and increased to 2.9 percent, the growth of the first half became 3.7 percent. 

While the growth target for 2013 was 4 percent, expectations had fallen down to 3 to 3.5 percent. While it was expected that the government would lower the target as it was making the Medium Term Program next month, now debate has begun whether or not there would be a revision due to the latest figures. 

Despite this positive figure, statements made by government ministers reflect the concerns on whether the 4 percent growth rate would be met. In their statements, ministers stated in one hand that this growth rate was very positive; on the other hand, they said growth would decrease in the second half and will be around 3.5 percent at the end of the year. Making positive comments and at the same time keeping the growth low demonstrate that they are anxious about the negative effects of the domestic demand dependent growth over macroeconomic equilibriums. 

While these interpretations are monitored closely by the market, the destruction that the domestic demand dependent growth will cause over macroeconomic equilibriums, primarily inflation makes the markets anxious also. For this reason, we can easily say that high growth figures are not very much welcomed. 

Equilibriums at risk 

When viewed according to economic activity branches, annual growth rates in manufacturing sector was 3.4 percent, in construction sector 7.6 percent, in trade 5 percent, in transportation/communication 3.3 percent and in financial institutions 8.5 percent. 

According to the Gross Domestic Product (GDP) calculated by the expenditure method, domestic consumption has increased 5.3 percent, government final consumption expenditure 7.4 percent, the government investment spending 36.7 percent; and on the other hand private investments have decreased 2 percent. While the goods and services exports increased 1.2 percent, goods and services import increased 11.7 percent. 
 
When growth rates are viewed as percentage, domestic consumption has had an increasing effect of 3.4 percent, the government final consumption expenditure 0.8 percent, government investment expenditure 1.4 percent and that stock changes have contributed 2.3 percent. On the other hand, while private investments had a negative effect of 0.5 percent, the contribution of net exports reached minus 3. 

In short, just as it happened in the first quarter, growth in the second quarter occurred through domestic demand and public spending channels. It is certain that this high growth figure achieved despite net exports pulled growth back 3 percent and despite the decrease in private investments contains serious risks for the future. 

What is important now is whether or not growth connected to domestic demand be restricted while we are entering the election process. If the current trend continues, then the situation regarding especially inflation and current accounts deficit, as a consequence the foreign exchange rate is not very bright.