Ugur Gurses: “Exhausted growth” cannot carry the country to 2023
The only reason we are seeing 0.9 pct growth this quarter, which was deemed a “recovery” in the economy, is thanks to production that went into inventory
Economist, former Central Bank researcher and renown columnist Ugur Gurses had resigned Turkey’s once bestselling daily Hurriyet, when it was taken over by the pro-government Demiroren Group. Now, among other things, he is blogger. This is an excerpt from his latest blog.
Both the consumption and investment data in the third quarter show a tendency toward “exhausted growth” in the private sector. I wrote at the end of October that this is the picture of weak, anemic growth. The economy is out of energy. With the economy in this weak and feeble state, Ankara cannot carry the country politically to 2023.
The contribution of expenditure items to economic growth is an interesting finding in the TÜİK (Turkish Statistical Institute) national income reports for the third quarter.
The growth rate appears to be 0.9 percent, but production that is geared toward increasing inventory seems to have contributed an increase of 3.2 points. Without production to increase inventory, we would be seeing a continued recession: A decrease in investment in the same quarter triggered a 3.5 point decrease in the growth rate.
The only reason we are seeing 0.9 pct growth this quarter, which was deemed a “recovery” in the economy, is thanks to production that went into inventory.
In reality, the economic recession is still in effect. Private consumption, which constitutes 57 percent of total national income, contributed a mere 0.9 point increase. Government consumption expenditure, which is 14 percent of total national income, also only contributed a 0.9 point increase to final growth rate.
Household consumption, which constitutes two-thirds of the economy, is at such a slow pace that public consumption, which makes up just one-eighth of the economy, can trigger the same amount of growth by functioning full throttle.
Another interesting finding is the continued decrease in investment and the inability to bring that decline to a halt. While private consumption was able to swing upwards in the third quarter, investment continues to dip.
Both the consumption and investment data in the third quarter show a tendency toward “exhausted growth” in the private sector. I wrote at the end of October that this is the picture of weak, anemic growth.
When you look at the “big picture,” the last five years paint a clear image of an increase in the role of public consumption in a landscape where government spending is going full-force and the private sector is pulling back on consumption.
Credit growth rates were zero in the third annual quarter, so it’s notable that a 0.9 pct growth rate was achieved through an increase in inventory.
If the current fourth quarter delivers a 2.5 percent growth rate, the annual growth rate will even out at zero, and a contraction will be avoided. The government, however, predicts an annual growth rate of 0.5 percent, which would require the last quarter’s growth rate to be 4.5 percent; this seems very unlikely according to the current trend.
Because Ankara was managing the economy by covering up structural weaknesses, they could not predict the emergence of an economic crisis from international political crises. Ankara failed to take precautions from 2013 to now because they underestimated the gradual decrease in global capital flow and high national liquidity, which led to increased loans being taken out.
It wasn’t surprising that a political crisis with the United States in August 2018 triggered the economic crisis. However, residents were terrorized when this political crisis was represented as a “war on our economy” in order to gather votes.
With the addition of poor crisis management, foreign creditors stopped landing and national household consumption plummeted.
Companies in Turkey were faced with the economic crisis with the highest debt ratio in Turkey’s history.
The average rate of loans granted to non-financial firms in relation to gross domestic product was 20 percent from 1989, when capital accounts were liberalized in Turkey, until the 2009 global financial crisis. When the economic crisis started in August 2018, this rate was 80 percent.
In comparison, Turkey was in the lead amongst developing countries when it came to growth in financial leverage.
After a sudden stop in the economic crisis and the following credit crunch, firms not just in Istanbul but also in Anatolian cities are thought to have failed to pay off loans, and some declared concordat.
Meanwhile, Ankara is trying to pump out credit through the public banks and in the last quarter, these efforts have been focused on housing loans. According to real estate data, these loans are flowing to housing that has been previously owned, not newly-built housing that has failed to sell.
Who is Uğur Gürses?
He graduated from Ankara University, Department of Economics at Faculty of Political Sciences in 1985. He started his professional career at Central Bank of the Republic of Turkey at Foreign Exchange Transactions Division in 1986. He worked at various divisions on reserve management, foreign exchange transactions and open market operations. Uğur Gürses moved to private sector in 1994. He worked for banks as executive manager. His main responsibility was on treasury activities. After leaving banking sector in September 2000, Gürses started to make TV programs on business and financial markets at CNN TÜRK. Gürses had been regularly writing articles on business and economics for Radikal Daily between 2001-2014 and Hürriyet Daily between May 2014-July 2018. After July 2018, Gürses started to share his views at his personal blog, “Ekonomi Alla Turca” – www.ugurses.net