The economic significance of 400 deputies
At first look, yesterday’s Turkish data releases seem to have discredited two-thirds of my last column, where I argued the economy was in a dangerous mix of slowing growth, persistent inflation and a stubborn current account deficit.
For one thing, according to official data released on Sept. 10, the economy grew 3.8 percent annually in the second quarter, higher than expectations of 3.3 percent. The main driver of growth was domestic demand, with private consumption and investment contributing 3.6 and 2.3 percentage points to growth respectively. External demand, on the other hand, shaved 1 percentage point off growth.
However, these figures are from the second quarter. The consumer confidence index, which had been a decent leading indicator of actual consumption until last year, has fallen two months in a row. With a weak Turkish Lira and an uncertain political landscape, it is unlikely to improve anytime soon. In fact, we may see a plunge in consumption once sales in a couple of sectors that are still robust such as while goods and passenger cars come to a halt.
Investment seems to be doing better, as the investment expenditures component of the real sector confidence index has been rising. However, according to statistics released on Sept. 8, the weaker-than-expected (0.3 versus 3.3 percent) annual growth in industrial production in July stemmed mainly from durable consumer and capital goods. Therefore, I do not expect much contribution from either investment or consumption to growth in the second half of the year.
In a similar fashion, the lower-than-expected July current account deficit ($3.2 billion versus $3.5 billion) may seem like a positive development at first look. However, the annual deficit actually rose from $44.3 billion to $45 billion. Besides, a more detailed look at the data, which was also released on Sept. 10, reveals the trade balance is worsening on the back of dismal export performance - as hinted by the trade statistics released on Aug. 31.
As you can see, despite the rosy headline growth and current account figures, and despite Economy Minister Nihat Zeybekçi’s heartwarming interpretation of both based on cherry-picked numbers, there is not much to jubilate about in either of yesterday’s data releases. If anything, they cannot contradict the economic slowdown and non-contracting current account deficit hinted in last week’s data, which were summarized in my Sept. 7 column.
While the grim economic prospects of Turkey’s major export markets like Russia, Iraq and the EU are responsible for the latter, the government has no one to blame but itself for the former. After all, Turkish consumption and investment usually slow down considerably before an election, even in auspicious times. Given the chaotic political environment, we should be thankful they have not come to a standstill yet.
In that sense, it is impossible not to agree with President Recep Tayyip Erdoğan that had “one party” won 400 seats in the election the situation would have been very different. Daily Hürriyet can certainly do without a third stoning, so I just wanted to be very clear about what I was saying.