The third quarter growth statistics revealed by the Turkish Statistics Institute
(TurkStat) on Tuesday showed that the economy continued growing but, more importantly,
that growth had became more balanced, or less unbalanced, if you prefer.
The annual growth rate reached 4.4 percent in the third quarter
while the seasonally adjusted quarterly growth rate was estimated to be 0.9
percent, making it 3.6 percent when annualized. Those growth rates are
higher than both market and government expectations. The prime minister
thus did not miss the occasion to show his jubilation. Moreover, the
contribution of net exports changed from negative during the first two
quarters to positive in the third quarter.
I was expecting such an improvement: I had written in this column on
Nov. 15 (“Recent developments in Turkish economy”) that the advanced
indicators of the third quarter allowed me to be moderately optimistic. I
had also noted that Bahçeşehir University Center for Economic
and Social Research's (BETAM) forecast pointed to a “possible comeback for
balanced growth.” However, it would be too early to declare a victory on
the economic front. Since the devil is in the details, let me go through
the details of the third quarter growth performance.
When the quarterly changes of the expenditures composing the gross
domestic product (GDP) are seasonally adjusted (see BETAM's last quarterly
research brief on economic growth), we observe the
following particularities regarding the growth performance from the second
quarter to the third quarter. The biggest contribution to growth came from
private consumption. It increased by 1.5 percent and contributed 1
percentage point (PP) to quarterly growth. This appetite for consumption
allowed firms to liquidate their inventory which had attained excessive
levels in the second quarter. So, the destocking also contributed
positively to growth.
Maybe it would have been preferable to have less appetite for
consumption and more willingness for saving but in the
days of low growth, this is better than stagnating consumption. That being
said, there is some good news: Private
investments continued to increase, contributing 0.5 pp while the contribution
of net exports was also positive at 0.7 pp. This was not the case in the
first two quarters. However, exports fell by 2.6 percent compared to the
previous quarter and this positive contribution was obtained by a higher
decrease in imports (minus 4.7 percent). This is not promising for the
The most striking and somehow surprising aspect of the third quarter
growth is the harsh halt on public expenditures. Indeed, public
expenditures declined by 6.6 percent compared to
the previous quarter, lowering the growth rate by 1 pp. Both
public consumption and investments decreased but the decrease in public
investments was quite high. Public investments had also decreased in the
second quarter, by 0.8 percent, but this decrease was much more moderate.
Clearly, the budget deficit this year will be much lower than the planned
deficit, probably lower than 2 percent. No doubt, the government has firmly
decided to stick to its fiscal discipline despite the approaching
elections. One can also consider this break very harsh in terms of growth.
Nonetheless, it constitutes an important anchor for macroeconomic stability
while the current account deficit (CAD) is still high, over 7 percent.
I expect a growth rate of around 4 percent this year. This performance would
be better than the forecasted 3.6 percent of the Medium-term Economic
Program (OVP). This will makeTurkey a high-growth
country compared to EU countries and some emerging countries. But what can
we say about the future? Repeating this performance next year will
basically depend on better export performance while imports, excluding
gold, must continue to moderately increase. This seems the case actually.
But we do not know yet if a structural change is under way or if this is
just a temporary situation.
As for exports, the Turkish industry has to progress more rapidly in
the value-added chain. Economy Minister Zafer Çağlayan presented on
Thursday important research conducted by his ministry about
the links between R&D, patents, trademarks, etc. and export
performance. I will come back to the results of this research on Monday,
but would just like to note that among 83,000 exporting companies, three
out four are neither spending a cent on R&D nor do they possess a
single patent or trademark.