Our toolkit is becoming obsolete
With pandemic affecting our lives not only in one quarter but so far a total of five quarters, from inflation to growth to well-being, the meaning of the indicators economists look at has started to change. It’s not that we are measuring things differently, but in my opinion, the meaning of the things we are measuring is changing.
For instance, take growth figures. The Turkish economy had a strong investment performance in the last three quarters. More interestingly, there has been no decoupling between investments and growth in the last three quarters, as Fatih Özatay explained in daily Dünya this week. Why this recoupling now?
Note that there is even a decline in construction investment and a rise in machinery and equipment investment. Why? Is there strong external demand leading to a surge in private investment? It’s a strange period to expect a structural change in any economy.
Has there been a pandemic effect? Maybe. At the beginning of 2020, around March, Turkey started to realize what COVID-19 actually was. From March to June, this caused paralysis. Then starting from June 2020, the initial lockdown ended, and we all started to adjust to our new way of life.
There was a rapid rise in online trading, as well as a surge in the number of motorbikes and light commercial trucks licensed in the country. Factories started to adjust, too. The surge in machinery and equipment investments can at least partly be considered as a pandemic adjustment on the part of the Turkish industry.
After the great paralysis, the manufacturing industry did better than the services and agriculture sectors. The service sector had to endure sudden stops and starts, the stress of wave after the wave of the virus. Restaurants, bars and cafes went through a great deal of uncertainty, yet factories were all open. They had spatial adjustments; fewer workers operating on the factory floor at the same time, with many digital devices to follow human movement inside the building. With fewer workers on the factory floor at the same time, there is more pressure to invest in automation just to improve productivity. If this doesn’t happen, costs will increase; there is no way around it.
Note that Turkish exports are also rising. There is growing external demand, so the rising demand from abroad is coupled with the effect of the pandemic on the factory level. With fewer workers to do the job, investment per worker goes up.
This may also explain why there is rising unemployment despite spectacular investment growth in the Turkish economy during the last three quarters. Note that one-third of Turkey’s young people are still unemployed as of May 2021. From May 2020 to May 2021, the number of unemployed for one to two months increased by 172.9 percent, while the number of unemployed for 30 days or less increased by 41.5 percent. These people are all newly unemployed. Think about that.
If you ask me, the pattern of strong growth with rising investment alongside a surge in the newly unemployed needs to be analyzed more closely. We need to find better indicators to measure the impact of the pandemic. Otherwise, data-driven policy decisions will get harder and harder as our data toolkit gets obsolete, or at least, less informative. The post-pandemic recovery is becoming more elusive as the danger of policy mistakes looms ever larger.