Hopes to emerge from obscurity…

I’ve heard this expression from an old friend of mine. He used to say this every time when his high school teacher made him take an oral exam. I wonder what they would ask if they made Turkish Economy take an oral exam.

I think international institutions would feel the same as a teacher would feel when his failing student suddenly starts to improve their academic standing.

Consumer Confidence Index was released last week, and we noticed that the Index has been improving greatly after a long period of decline. At one stage, Consumer Confidence figures have been even lower than the last year’s figures because of the election we went through this year.

The gradual improvement in Industrial Production Index first, and then in Real Sector Confidence Index and Consumer Confidence Index resulted in upward revisions by international financial institutions, which led CDS premiums to fall below 300 bps.

Lastly, the OECD also revised upwards the GDP growth forecast for this year to 0.3 percent from – 0.3 while, revising its GDP growth forecast for 2020 to 3 percent from 1.6 percent. Although this year’s GDP growth rates seems to be compatible with the NEP, almost all credit rating agencies, especially FITCH, try to act with caution for 2020. I hope they will not deliver a delayed revision in 2020 as they did in 2019 despite this year’s wave of improvement. Now, let’s take a quick look at the details of the OECD report.

As for the inflation: OECD forecasts 2019 inflation rate at 2019 15.8 percent while 2020 inflation is projected to hit 13.2 percent. Both percentages seem to be very remote from the NEP target. Here’s the interesting part: I can guess as well that year-end inflation rate will hit double digit again but what may credit rating agencies expect to happen which make it increase a total of 7 points in just two months. Should we expect a wave of price hikes in December? These questions need to be answered as soon as possible.

Current account deficit projections, on the other hand, seem to be more reasonable and more compatible with the NEP: current account deficit to GDP ratio for 2019 is 0.3 percent while current account deficit to GDP ratio for 2020 is – 0.7 percent. Apparently, Turkey will run a larger current account deficit this year. Turkey’s current account deficit forecast seems quite acceptable as a maximum of 3 percent GDP growth is expected for the next year.

According to the OECD Economic Outlook, “Growth has continued to pick up over recent months. Substantial government stimulus is lifting domestic demand more vigorously than previously anticipated and currency depreciation is supporting exports” Well, I do absolutely not agree with the last statement. International Financial Institutions’ approach to Turkish exports appears to be overly stereotyped. Actually, Turkish lira has faced only a small depreciation, let alone the fact that there has been a decline in the value of exported goods as well.

” Yet, weak external trade demand, geopolitical uncertainties and impaired private balance sheets are projected to keep GDP growth at around 3 percent, well below potential growth,” OECD added, which means the Organization expects Turkey’s potential growth to remain around 5 percent. OECD also advised, “Turkey should make the macroeconomic policy framework simplified and more transparent to rebuild domestic and international confidence.” Well, I can’t argue with that.

“Global Expectations not positive…”

Obviously, OECD Economic Outlook doesn’t involve only Turkey; it is an analysis of the major economic trends and prospects for the next two years. According to the analysis, “World GDP growth fell to 2.9% this year – its lowest rate since the financial crisis – and is expected to remain stuck at 3% over the next two years” OECD added that global GDP growth may face further slowdown if downside risks become a reality. Although “downside risks” is a commonly used term in the financial jargon, it seems a bit fancy and meaningless. Wouldn’t it be clearer if we said, “If our fears become reality…?”

By the way, OECD projects 2.9% United States growth for 2019 2019 with particularly large revisions in the euro area such as 1.2 percent, while it increases Chinese growth expectation to 6.2 percent. Despite low GDP growth rates in the United States and in the EU, it seems rather meaningless that OECD revises up Chinese GDP considering the fact that the U.S. and the EU are two largest trading partners of China. However, as the volume of value-added and high-tech products grows in Chinese exporting activities, it seems almost impossible for China to attain a GDP rate lower than 6 percent