It must have been the curse of the black eagle (after all, the PM, the Econ Minister and the FinMin are all ezikbahce fans) when I was writing on my updated forecasts yesterday. A contributor to Dealers of Turkey, a yahoo newsgroup, summed everything up by simply pasting the Wikipedia definition for tangent. I have likewise been claiming that the PM missed the geometry class in primary school when tangent and diameter were introduced, as he does not seem to know the difference between the two. After all, it is not often that you set to get two medals with one performance: While 1Q09 growth easily brushed past the 1994 and the 2001 crises to secure the gold medal for the largest contraction since the series began more than two decades ago, it also barely beat Lithuania for the bronze medal in the international competition for the worst growth performance, right behind Latvia and Estonia. As a side, note that all these countries are in the same region, which is what I was arguing in my last Daily News column to explain Turkish assets' relative resilience.
Anyway, coming back to the figures, while the 13.8% yoy (I'll be using only the yoy figures here) 1Q growth figure was not that off from expectations in the range of 12-13% yoy, the devil is in the details. Specifically, looking at the contribution to growth on the expenditure side reveals important facts. First, make no mistake, the private sector hit rock bottom in the first quarter: The contribution to growth of private consumption and growth were -8.3% and -6.6% respectively. Second, even though the government used fiscal measures to the full at the expense of risking to disrupt debt dynamics, increasing the rollover rations and crowding out private credit in the process, the public sector's positive contribution to growth has been a limited 1.2%. I am aware that this accounting view is a bit too simplistic. After all, you can argue that private sector figures would have been worse without government intervention. But the figures below illustrate the general dilemma faced by many countries: Because of the sheer size of the private sector and crowding out effects, the effectiveness of fiscal policy is debatable. As for the implications of these figures for 2009 growth, yesterday's 6.66% contraction does not look that fictional anymore, even though my main scenario is calling for 5-6%.
In any case, the billion dollar question I brought up earlier is not what happened, but what will happen: While the global and domestic economic skies are too hazy to have a clear look at the horizon, the latest data are not that encouraging. For one thing, even though the the government's timely tax cuts (render unto Caesar what is Caesar's) have boosted consumption in 2Q, it is questionable how much of this will carry on the the rest of the year. While anecdotal evidence is rather mixed, May real sector confidence indices hint that destocking has come to and end. After all, they may come if you build it, but they will not definitely consume if they are not meant to consume. Moreover, rising unemployment and falling real wages make a strong and sustained consumer comeback very unlikely. As for investment, according to the same survey, there is only a limited improvement in investment prospects, with the outlook continuing to look dire.
The trillion dollar question, on the other hand, is what will happen in 2010 and beyond. Here is where an economic policy framework would be extremely useful, with or without the IMF. Otherwise, we may see a repeat of the lost 90s during the next decade. As for greenshoots, the only good part of today's release is that the PM might have finally learned the difference between tangent and diameter and that these figures could serve as a sharp wake-up call...
Anyway, coming back to the figures, while the 13.8% yoy (I'll be using only the yoy figures here) 1Q growth figure was not that off from expectations in the range of 12-13% yoy, the devil is in the details. Specifically, looking at the contribution to growth on the expenditure side reveals important facts. First, make no mistake, the private sector hit rock bottom in the first quarter: The contribution to growth of private consumption and growth were -8.3% and -6.6% respectively. Second, even though the government used fiscal measures to the full at the expense of risking to disrupt debt dynamics, increasing the rollover rations and crowding out private credit in the process, the public sector's positive contribution to growth has been a limited 1.2%. I am aware that this accounting view is a bit too simplistic. After all, you can argue that private sector figures would have been worse without government intervention. But the figures below illustrate the general dilemma faced by many countries: Because of the sheer size of the private sector and crowding out effects, the effectiveness of fiscal policy is debatable. As for the implications of these figures for 2009 growth, yesterday's 6.66% contraction does not look that fictional anymore, even though my main scenario is calling for 5-6%.
In any case, the billion dollar question I brought up earlier is not what happened, but what will happen: While the global and domestic economic skies are too hazy to have a clear look at the horizon, the latest data are not that encouraging. For one thing, even though the the government's timely tax cuts (render unto Caesar what is Caesar's) have boosted consumption in 2Q, it is questionable how much of this will carry on the the rest of the year. While anecdotal evidence is rather mixed, May real sector confidence indices hint that destocking has come to and end. After all, they may come if you build it, but they will not definitely consume if they are not meant to consume. Moreover, rising unemployment and falling real wages make a strong and sustained consumer comeback very unlikely. As for investment, according to the same survey, there is only a limited improvement in investment prospects, with the outlook continuing to look dire.
The trillion dollar question, on the other hand, is what will happen in 2010 and beyond. Here is where an economic policy framework would be extremely useful, with or without the IMF. Otherwise, we may see a repeat of the lost 90s during the next decade. As for greenshoots, the only good part of today's release is that the PM might have finally learned the difference between tangent and diameter and that these figures could serve as a sharp wake-up call...
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