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GÜVEN SAK >Why Turkey’s economy stumbled in 2016

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According to the Turkish Statistical Institute (TUIK), Turkey grew by 3.5 percent in the fourth quarter of 2016. Added to upward revisions of the previous two quarters, that brings Turkey’s annual growth in 2016 to 2.9 percent. The same number was 6.1 percent in 2015. 

What does this mean? Turkey recently changed the way it calculates its GDP, leaving all analysts perplexed.

 One of our basic indicators was reconfigured overnight and there is still much confusion. But this much is obvious: Turkish growth stumbled in 2016. We know that without even starting to look at how the GDP calculation changed. 

The government’s medium-term program (MTP) was expecting 2016 growth to reach 4.5 percent at the outset, but that was revised down to 3.2 percent. So with 2.9 percent growth in 2016, does it mean that the MTP was successful in anticipating the growth rate in 2016? Definitely not. The MTP numbers are from Mars, while the newly announced 2.9 percent is from Venus. They are based on different calculations of GDP. If we still had the old series, 2016 growth could well be around 1 percent with this performance. That is why Turkey’s growth is far below the country’s own target.

Some have been asking this question, so I’ll humor it: “Can we expect growth to rebound automatically with a ‘Yes’ vote in the April referendum on shifting Turkey to an executive presidential system?” No. Here’s why.
Look at the reasons behind Turkey’s poor performance in 2016. There are three main items here. First, the slowdown in global growth. The Turkish economy, at the end of the day, is part of the European economy.

 Half of our exports go to European markets, where things were slow in 2016 and remain so today. 2016 was the ninth consecutive year where the EU’s growth was below the long-term average (1990-2007). This week’s Brexit letter to Brussels, as well as the French and German elections on the horizon, all make things even more difficult for the EU. Uncertainty is never good for business. Turkey’s April referendum isn’t going to change any of that. 

Second, the slowdown in Turkish growth is directly related to the regional uncertainties created by the Syrian civil war. This war has dialed up existential angst in Turkey significantly. Cornered in the field, Ankara has been trying to be a spoiler, but keeps getting knocked down by regional powers and the U.S. As a consequence, we now have a PKK state on our border and groups like al-Qaeda and ISIS creeping about our cities. The impact on tourism alone could be devastating. Unemployment is rising to levels high even for Turkey, and those tourism jobs were going to be sorely needed. Can the country power through all this on a super presidency? I doubt it.

There are also domestic reasons for Turkey’s slowdown. Start with the “State of Emergency a la Turca” and continue with the related erosion of the rule of law, rising current account financing needs, and the lack of a strong economic reform, not to speak of the sharp depreciation of the Turkish Lira. Uncertainties related to social cohesion issues related to Syrian refugees, Kurds and the others also belong in this category. Can we just expect all of these issues to be addressed by a referendum? That would be lovely, if things could be solved that easily. Yet there is cause for concern.

Would any of these issues be resolved if the referendum results in a “No” vote? Of course not. The ensuing early elections or a coalition government with the Nationalist Movement Party (MHP), leadership crises and political smearing wars would continue to eat away at trust. Turkey is in the throes of a serious political crisis that will not be resolved any time soon. 

So weak growth in 2016 is merely a symptom, or a warning sign, like a child crying. The 2017 economy is crying out for attention. We are already in April and nobody is listening. Mind the Turkish economy.

April/01/2017

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