At$6 billion, the Januarycurrent account deficit came in higher than market expectations of $5.5billion, not to mention Economy Minister Zafer Çağlayan’s optimistic $4 billionprojection. According to Sabah, this would make Çağlayan a “karavanacı”(someone who completely misses the target), as the Turkish daily has calledeconomists whose forecasts have been off.
Highoil prices are definitely taking their toll on the current account, but eventhe non-energy deficit is not adjusting as quickly as expected. As anyone whoskims Turkish dailies would know, a high deficit is a risk because it makes thecountry dependent on foreign financing, basically subjecting it to the whims ofglobal risk appetite. An economy where the Central Bank governor spends moretime worrying about the Fed and ECB than domestic developments is nothealthy by any means.
Argentineaneconomist GuillermoCalvo is reported to have jokingly said that “we don’t know much abouteconomics other than accounting identities”. The national income accountingidentity dictates that the current account is (more or less) equal to the sumof public and private savings investment balances. As an emerging market,Turkey needs to invest a lot to grow. But its savings rate, currently around 12percent, is very low as well, which can easily be seen in internationalcomparisons.
Moreover,savings have been falling since the end of the last millennium. While publicsector profligacy was behind the decline before the 2001 crisis, the fall insavings over the last decade has mainly been a private sector phenomenon, asthe government started running a tight fiscal ship as part of the crisisrecovery program.
Inanew study, which was released in Istanbul and Ankara last week, World Bank economistsgo a step further by showing that the savings shortfall was due to the plungein household savings, as corporate savings actually increased, at least untilthe 2008-2009 global crisis.
Theyattribute lower household savings mainly to the “declinein macroeconomic vulnerabilities”: The increased availability of credit,fall in interest rates and postponed consumption more than offset the increasein savings that would be associated with rising incomes. There was also lessneed for precautionary savings as the economy normalized.
Thedecline in woman’s labor force participation might have played a role as well,as anearlier World Bank study has found that households in which women work tendto save even beyond the additional income effect. It seems working not only saveslives for women, as I was arguing last week, but it also saves privatesavings!
Theseresults are in line with earlier findings, which I had referred to when Ifirst addressed the Turkish savings problem more than two years ago. EconomistsMurat Üçer and Caroline Van Rijckeghem have attributedthe decline in savings to the post-crisis credit growth and the rise in housingprices, whereas research from Yapı Kredi has pointedto the increase in middle classes’ share of consumption.
Butthe real question is how to increase private savings. This is where I will pickup next week, when I will conclude my savings trilogy.