There has been a degree of confusion over the pace at which Turkey’s economy is expanding. This follows the release of national accounts data on Wednesday and I’d like to see whether I can shed a bit of light on the underlying position that the new GDP figures reveal. I’m not going to drill down into the individual GDP components (although this is where the real nuance lies). I just want to try to clear up the basic question of how fast the economy is growing according to the numbers released this week.
The headline result announced on Wednesday was that Turkey’s GDP increased year on year by 11.7 per cent in the first three months of 2010. On the face of it, impressive: the output of the Turkish economy in the January to March period of 2010 was more than one tenth larger than its output in the same period a year earlier. Today’s Zaman described this as a “breakneck” pace.
Find a way to sustain that kind of year-on-year growth and you’re on the way to economic transformation. But this figure of 11.7 per cent tells us nothing about the sustainability of Turkey’s recovery. It tells us more about where we’ve been than where we’re going to. The reason for this is the ‘base effect’ of the year-ago period we’re comparing this year’s output against.
In the first three months of 2009, output had slumped badly. It was down by 14.5 per cent on the same period in 2008. That puts this year’s 11.7 per cent rebound in context—it wasn’t enough to take us back to where we were two years ago.
That’s not necessarily a major problem. If recovery is stable then Turkey will make up for 2009’s decline this year and continue to grow from there. But if you probe the first-quarter numbers just a little bit more deeply, the recovery doesn’t look all that stable. Here, we need to break down the annual figures and look at what happened across the 12 months leading up to the first quarter of this year.
We can do this by looking at quarterly growth figures. (These are adjusted to smooth out expected variations in output across the year, so that these seasonal factors don’t distort our view of the underlying trend.) In each of the four quarters over the past year, how much did the economy grow compared with the preceding quarter? Here are the figures:
Q2 2009: 5.4 per cent
Q3 2009: 3.3 per cent
Q4 2009: 1.7 per cent
Q1 2010: 0.1 per cent
There’s an obvious trend here and it’s not one that supports the view that the economy was expanding rapidly as it moved into this year.
It’s a bit as if the Turkish economy has had to dig itself out of a deep hole that it got itself into in early 2009. What the year-on-year result of 11.7 per cent tells us is that the economy is well on the way to getting out of the hole. Undeniably, this is good news. But what the quarterly data tell us is that the economy isn’t looking too spritely as it nears ground level. On the contrary, its progress has slowed significantly after an initial rapid bounce and by the first quarter of this year it was moving at a crawl.
That matters. If the economy isn’t actively expanding, then where are the jobs going to come from that are needed to bring down Turkey’s stubbornly high unemployment rate?