Upward signs in unemployment

On Thursday, the Turkish Statistics Institute (TurkStat) released the labor market figures for the June period (May-June-July). All the figures point to an increase in unemployment.
It could be more difficult to find jobs in the coming months The year-on-year change in the unemployment rate has shown a rising trend in the last eight months and the most recent figures confirmed this trend. From June 2012 to June 2013 the overall unemployment rate increased from 8.2 percent to 8.8 percent and the non-agricultural unemployment rate from 10.4 percent to 11 percent. As for the seasonally adjusted figures, which constitute a better indicator of current trends, the overall unemployment rate rose from the periods of May to June from 9.4 percent to 9.6 percent and non-agricultural unemployment from 11.7 percent to 11.8 percent. These increases, albeit limited, could be the signs of a rising trend in unemployment. This is not surprising; on the contrary, this must be considered a return to the norm. Indeed, the low growth trend prevailing in the Turkish economy for almost two years should have caused a rise in unemployment earlier. The growth rate was limited to a mere 2.2 percent last year and for this year, there is a large consensus among forecasters, including Deputy Prime Minister Ali Babacan and Turkish Central Bank Governor Erdem Başçı, that the gross domestic product (GDP) growth will be under 4 percent, probably around 3.5 percent. Those rates can be considered quite high by European standards, but they are insufficient for Turkey to keep unemployment under control given the existence of a strong increase in the labor force. Very surprisingly, the low growth trend in GDP did not produce a significant increase in unemployment until now, thanks to a very high rate of job creation in the non-agricultural sectors, particularly in services. What is striking about the new figures is the rise of unemployment seems to result from a weakening of the job creation process. Indeed, the monthly brief from Bahçeşehir University Center for Economic and Social Research (Betam) on the Turkish labor market shows that there is an important decrease in seasonally adjusted employment in the construction sector (minus 5.6 percent) from May to June. It must be noted that this sector employed almost the same number of workers in June 2012 as in June 2013. This is a sign of a serious economic slowdown in construction. At the moment there aren't clear signs of a resurgence in either domestic demand or exports. The recent rise in loan rates can hardly drop in the context of expectations of diminishing liquidity in the international financial markets, due to the US Federal Reserve's roadmap for progressively ending cash stimulus. To this negative we must add the still-stagnant European market. So, in these circumstances the Turkish economy could be facing even lower growth in the coming months. If at the same time the end of the job creation “miracle” is confirmed, unemployment will start to increase clearly and in earnest. It is significant that Betam's early indicator of unemployment calculated from the Kariyer.net database (the biggest Internet-based job network in Turkey) signals an unemployment increase for July. Until now, the Justice and Development Party (AK Party) government did not suffer politically from the slowdown in growth. The unemployment decrease, which had prevailed since the strong recovery in the aftermath of the global recession, halted, but unemployment did not rise significantly either. In the coming months, in which we will witness the increased tensions of successive electoral campaigns, a rise in unemployment will definitely be a headache for the incumbent AK Party. How can the government respond to rising unemployment? Public expenditure, particularly in construction, can be augmented. There is some room to maneuver on this front, since the budget deficit is quite low (well under 3 percent) and this is also the case for public debt, its ratio to GDP being around 37 percent and on a declining path. However, it should be remembered that the AK Party is a strong believer in fiscal discipline, and the low budget deficit constitutes the Turkish economy's main anchor in the context of a high and rising account deficit. Then, there remains the monetary option. However, it is not certain that the Turkish Central Bank will be able to decrease interest rates in the coming months. One thing is certain: The coming period will be very interesting for political economists.