Growth figures disappoint markets
Third-quarter growth figures announced at the beginning of the week have created disappointment in the markets. These figures, at the same time, gave the impression that measures taken for a transition to balanced growth remain inadequate.
Actually, right after the announcement of these figures, several statements such as “This reveals that the brakes were pulled too much,” or “More acceleration is needed,” started coming from the business world and from those ministers known for their growth-oriented tendencies.
Consequently, we can expect in coming days a new debate on “brakes or the accelerator.”
The first three-month growth figures, and after them, October industry production data point to growth below expectations. Following these data, Finance Minister Mehmet Şimşek’s address, while he was making a presentation in Parliament’s General Assembly for the 2013 Budget Law debate, showed that from now on focus would be on growth-oriented policies. Minister Şimşek confessed that 2012 growth rates will not even reach those rates that they have revised and pulled back, and said they would focus on growth from now on.
Following all these announcements, the expectation in the market of a cut in interest rates has strengthened greatly. In the Central Bank’s Monetary Policy Board meeting to be held Dec. 18, it is expected that they will lower interest rates around a half point. Markets are buying this expectation in advance.
If the accelerator is stepped on too much
When we review the growth data of the first nine months, it can be seen that domestic demand has a negative effect on growth, and in the last quarter, despite some moderation, the setback effect of domestic demand continues. Despite this, it can be observed that the contribution of exports to growth is continuing even though its effect has slowed down a little in the third quarter. Meanwhile, markets started discussing the effect of high gold trade in this year’s hike in exports as well as the expectation of a restriction on the gold trade with Iran with pressure from the U.S.
Another factor effective on growth is the increase in public expenditure. Almost half of the growth looks to have stemmed from the increase in public spending. In other words, if public expenditure had remained at its normal course, then the current low growth rates would have been almost half less.
Alongside this increase in public spending, it also clearly stands out in the growth data that the private sector’s investment and production trend has dropped.
What is important is what will be done from now on.
If the government steps on the accelerator more looking at these low growth rates, then new problems may emerge. It should not be forgotten that the real reason behind the decline in the current accounts issue this year and the drop experienced in the inflation rate recently was because of consenting to these low growth rates.
In the global economy, at least for 2013, no development is expected that would disrupt this course of events. However, with the effect of domestic and international political developments, it is apparent that a much more careful and sensitive period is ahead of the economy administration.
In other words, if the accelerator is stepped on to the rate that the business world and certain ministers want, then the macroeconomic balance obtained may be in jeopardy.