Contrasting Turkey’s stellar economic growth in the first quarter to the picture drawn by the Central Bank’s Monetary Policy Committee on June 23 could yield interesting results.
The Turkish gross domestic product, or GDP, expanded by a whopping 11 percent in the first quarter when compared to the first quarter of 2010. Thus, Turkey has become the “growth champion” of the world, surpassing China as the “Eurasian tiger,” according to Royal Bank of Scotland economist Timothy Ash. GDP growth compared to the previous quarter is also a robust 1.4 percent.
Breaking down the official data, we first notice the contribution from private consumption - a massive 8.7 percentage points. Investment spending accounted for an impressive 7.2 percentage points, emphasizing that as households continue spending at a never-before-seen pace, companies are encouraged to invest more. On the other side of the coin lies the contribution of net exports - at minus 5.5 percentage points. This piece of data complements another set of figures released yesterday by TurkStat: In May, the trade deficit soared to $10.1 billion, breaking a new record. The 12-month rolling trade deficit stands at $92 billion - reflecting $123 billion in exports, but $215 billion in imports.
Looking into the production side, the combined contribution of industry and trade to GDP is at 5.7 percentage points. On the spending side, the combined contribution of private consumption and private investment is at 16 percentage points - a figure that is chopped down by 5.5 percentage points due to negative contribution from net foreign demand.
The overall picture is one of robust private domestic spending, which fuels an industry that is dependent on imports of intermediary goods and energy. As exports fail miserably to keep up with imports, Turkey’s current account deficit surges to levels many analysts call “unsustainable.”
Enter the debate on whether the economy is “overheating” or not. The Central Bank’s Monetary Policy Committee, or MPC, takes a pretty dovish stance on this issue. In their June 23 meeting minutes, released yesterday, MPC members announce that “aggregate demand conditions do not point toward overheating.” They add: “As domestic demand follows a moderate outlook, capacity utilization rates in manufacturing preserve their low levels, due to weak foreign demand.”
Of course, this statement is essentially about the end of the first half of the year, while the GDP data tells us about the first quarter. Thus, the Central Bank is content that its “unorthodox” monetary policy measures, whose implementation started late last year, are working. Regarding the latest phase of that policy, MPC members say that the precautions taken by the banking regulator will “support efforts to control fast credit growth.” Furthermore, they say, these precautions are “limiting the need for extra hikes in bank reserve requirements.” One could easily interpret this as “no more new measures” on the monetary policy front.
Thus, the Central Bank in essence thinks that the precautions taken since November last year are having their effect on the economy, preventing overheating. This would mean a “dramatic” decline in GDP growth rate in the second quarter, but the meager decline in industrial output (a 0.6 percent monthly drop in April) and high loan expansion (annually 35 percent) are hardly signs for such an optimistic perspective.
This is precisely where economy gets political – the boom in sales of cars, homes, home appliances, holidays and cell phones is surely part of the story of how the ruling party got half of all votes, though it has been in office for nearly a decade. The Turkish people are spending, riding high on the wave of a credit-fueled growth and loving it – and policy makers have no intention to spoil the party.
The Turkish gross domestic product, or GDP, expanded by a whopping 11 percent in the first quarter when compared to the first quarter of 2010. Thus, Turkey has become the “growth champion” of the world, surpassing China as the “Eurasian tiger,” according to Royal Bank of Scotland economist Timothy Ash. GDP growth compared to the previous quarter is also a robust 1.4 percent.
Breaking down the official data, we first notice the contribution from private consumption - a massive 8.7 percentage points. Investment spending accounted for an impressive 7.2 percentage points, emphasizing that as households continue spending at a never-before-seen pace, companies are encouraged to invest more. On the other side of the coin lies the contribution of net exports - at minus 5.5 percentage points. This piece of data complements another set of figures released yesterday by TurkStat: In May, the trade deficit soared to $10.1 billion, breaking a new record. The 12-month rolling trade deficit stands at $92 billion - reflecting $123 billion in exports, but $215 billion in imports.
Looking into the production side, the combined contribution of industry and trade to GDP is at 5.7 percentage points. On the spending side, the combined contribution of private consumption and private investment is at 16 percentage points - a figure that is chopped down by 5.5 percentage points due to negative contribution from net foreign demand.
The overall picture is one of robust private domestic spending, which fuels an industry that is dependent on imports of intermediary goods and energy. As exports fail miserably to keep up with imports, Turkey’s current account deficit surges to levels many analysts call “unsustainable.”
Enter the debate on whether the economy is “overheating” or not. The Central Bank’s Monetary Policy Committee, or MPC, takes a pretty dovish stance on this issue. In their June 23 meeting minutes, released yesterday, MPC members announce that “aggregate demand conditions do not point toward overheating.” They add: “As domestic demand follows a moderate outlook, capacity utilization rates in manufacturing preserve their low levels, due to weak foreign demand.”
Of course, this statement is essentially about the end of the first half of the year, while the GDP data tells us about the first quarter. Thus, the Central Bank is content that its “unorthodox” monetary policy measures, whose implementation started late last year, are working. Regarding the latest phase of that policy, MPC members say that the precautions taken by the banking regulator will “support efforts to control fast credit growth.” Furthermore, they say, these precautions are “limiting the need for extra hikes in bank reserve requirements.” One could easily interpret this as “no more new measures” on the monetary policy front.
Thus, the Central Bank in essence thinks that the precautions taken since November last year are having their effect on the economy, preventing overheating. This would mean a “dramatic” decline in GDP growth rate in the second quarter, but the meager decline in industrial output (a 0.6 percent monthly drop in April) and high loan expansion (annually 35 percent) are hardly signs for such an optimistic perspective.
This is precisely where economy gets political – the boom in sales of cars, homes, home appliances, holidays and cell phones is surely part of the story of how the ruling party got half of all votes, though it has been in office for nearly a decade. The Turkish people are spending, riding high on the wave of a credit-fueled growth and loving it – and policy makers have no intention to spoil the party.
Source : Hurriyet Daily News
