Tuesday, July 6, 2010

The best summary of an idea of mine

One of the column ideas I shared in the blog last month was the dichotomy between stock and flow data in the Turkish economy. One of my favorite Turkish economy research outfits, Istanbul Analytics/ GlobalSource, takes on this issue at their latest monthly report.
Turkey looks great if you focus on “stocks”, be it capital adequacy ratios of the banking sector or the government debt-to-GDP ratio that is below 50%. But we still don’t like the “flow” story, as we set forth in our Quarterly report early last month. The main thing is that Turkey needs significant amounts of high quality capital inflows to sustain high growth rates, but it is doubtful that they will be forthcoming. Combined with the political uncertainties ahead, the absence of a comfortable financing outlook would mean slower perhaps even negative growth late this year/early next, and therefore a higher unemployment rate than in the pre-crisis period. This, in turn, would mean political panic and less stability, triggering a vicious circle.
By the way, these are the same folks that recently provided the best explanation for the relationship between money and balance of payments in Turkey.

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