Reasons for the forced brakes in growth

The 2012 growth figures were a total surprise in terms of the markets. With the 2.2 percent growth figure in 2012, it came to light that after the high 8.8 percent growth figure of 2011, Turkey has suddenly hit the breaks.

2012 growth had initially been targeted at 4 percent, and later in medium term program studies the growth rate had been revised to 3.2 percent. Because data regarding the last quarter of the year was progressing moderately, estimates in the market had fallen further but nobody was expecting a growth rate of 2.2 percent.
 
When we look at the details of the low growth figure, it is possible to see the general structure of the economy and several other factors bringing out structural problems.

The first one of these is that the established economic structure in Turkey openly reveals that it has still yet to reach a high rate problem-free growth capacity. When Turkey grows at a high rate, it is obvious that inflation and current account deficit problems emerge. For this reason, after a year of high growth, the following year brakes have to be stepped on for the macro equilibriums to be established again. Otherwise, if high growth is achieved for a few consecutive years, then problems in the economic structure emerge and constitute a threat.

At the same time, this picture proves that the economy is foreign dependent. One of the biggest reasons for this is that the savings ratio remains low. It is apparent that the necessary platform to attract foreign capital has still not been created and growth is being financed by short term capital movements.

Consequently, for economic growth and for macro equilibriums, the global environment absolutely has to be good. Up until now, such an environment has been found, but it is apparent that there will be trouble from now on in terms of global financing resources. For this reason, we can say that the coming years will be tougher and that the possibility of structural issues causing further problems will increase.

Increasing public expenditures

When details of the low growth figures are reviewed, it can clearly be seen that growth has been supported by public expenditures. In other words, if there wasn’t an extreme increase in public spending, the growth figure could even have been minus. This is also another piece of evidence that deeper structural troubles are being experienced. There is no possibility that public expenditures will keep increasing constantly this way. Otherwise, we may see that the fiscal discipline is disrupted; thus, the balance that also attracts hot money starts to distort. For this reason, it is not possible to constantly sustain based on public expenditures.

Meanwhile, the role of the increase in external demand, in other words the increase in exports, is important for growth to happen to a certain extent. It should not be forgotten that a narrowing of the internal demand causes inflation to drop and curbs imports. On the other hand, it is also mentioned that troubles in Europe are increasing, so it was therefore impossible for exports to increase at the level they did the previous year. This also means that the external demand will not increase. When external demand does not increase - also with the influence of elections - in the event that this gap is met by internal demand, then more serious problems may emerge.

In sum, the Turkish economy stepped on the brakes last year because it has serious structural issues.