What does Turkey's growth tell?

Published 13.09.2017 01:45

Turkey's growth data has led many analysts and investment enterprises to make serious revisions on their forecasts for Turkey. Lastly, Nomura raised its growth forecast for Turkey to 5.5 percent for 2017. It seems that this is one of the most realistic estimates for the country's growth in 2017. We estimate that Turkey will grow by more than 5 percent in 2018 too. Let us go back in time to tell what this prediction relies on.

Turkey shrank by 1.8 percent in the third quarter of 2016. This was also because of the July 15 coup attempt. However, we came to see a rapid recovery after the last quarter. In fact, the first acceleration of the current growth started in the last quarter of 2016. The expectation in the last quarter of 2016 was 2 percent at the most. However, the growth rate of 3.5 percent indicated a rapid recovery depending on domestic consumption.

At this point, we have to talk about the role of politics. This is because Turkey entered a more secure and stable path in politics even if some European countries do not want to acknowledge it. Moreover, we came to see the first signs of a new economic path that did not have slapdash policies like the old one, and that moved away from the skid of "one step forward, two steps back." After having survived the shock of the July 15 coup attempt, domestic markets acknowledged in the last three months of 2016 that the new era was the beginning of a long and stable path.

The political stability, a decisive struggle against terrorism and their consequences have led to two developments that mutually stimulated each other. First, the investment environment improved, and the appetite of both the domestic and foreign investors was restored. Second, the banking and finance system gave the economy without hesitation the resources to meet these investment demands. Thus, as of the last quarter of 2016, the economy began to recover rapidly. However, this recovery had to be built on a new growth path that would constantly and increasingly accelerate safe and sound. At the end of 2016, industrialists and exporters were quite concerned that the wheels of the economy would stop. The main concern of industrialists I met on those days was the resource problem for investments that had not been renewed for a long time and the simultaneous and rapid shrinkage of the domestic and foreign markets. Some circles deliberately put forth the pictures of instability based on the July 15 coup attempt, keeping the concerns of industrialists and investors high.

However, as of early 2017, reassuring developments in politics and the economy have been taking place. Parallel with this, uncertainty in the U.S. and the EU and the U.K.'s Brexit process have quickly made Turkey one of the most investable countries. Nevertheless, a flip of move was needed for industrialists and exporters. At this very point, the Credit Guarantee Fund (CGF) came into play. The introduction of the CGF improved not only domestic demand but investment quickly. The import weight seen in the 2016 growth started to improve itself in favor of exports at the end of the first quarter of 2017. Thus, exports began to make a positive contribution to the accelerating growth in 2017. Finally, the contributions of the sectorial compositions in the second quarter of 2017 began to reach the desired level.

Of course, one of the most striking data regarding the second quarter growth that was announced yesterday is the Gross Fixed Capital Formation. The 9.5 percent contribution of public and private investments (Gross Fixed Capital Formation) both gives an idea about the future of growth and shows that banking resources are eventually starting to head in the right direction. Undoubtedly, this is mainly thanks to the new rating-measuring set that the system has started to use after the introduction of CGF. This is because the intention of production and investment and return on investments are considered a priority in the approval mechanism of this lending system. Here, a new rating system has been introduced that transforms project risks into credit risk. As such, CGF loans have been used with focus on production and investment. It is not true that these loans have been used with the purpose of speculation. The data shows that the loans are production-oriented.

I think that it would not be sound to comment on quantitative values ​​apart from all this. What matters here is the general trend of this new growth path, its composition and the means by which it has been established. In other words, while the composition of growth has changed in favor of the industry and exports and it has gone up rapidly, the state did not make a non-market intervention in it.

Here, I am referring to those who openly evaluate CGF as a flip of the state and those who ask "what will happen when the CGF ends?" First, practices such as the CGF mobilize market-friendly dynamics. Second, the CGF is a necessity and construction of the market itself, not the state. Here, the state has only responded to market requirements. For instance, while South Korea's practice contains much more statist elements, Turkey's practice is fed by market dynamics as a unique example. With this in mind, the CGF will be strengthened, institutionalized and will move on. Just like in the case of the CGF, the state will spearhead in the creation of such market regulation instruments from now on. Consequently, one of the basic qualitative criteria for inclusive growth is the transformation of total income generated in a country into competitive investments in a way that future generations can also benefit it. In addition, a country like Turkey, which has to use external savings besides national savings, must strongly attract foreign capital to itself and direct this capital to the right areas with the right economic policies.

This growth rate and quality tells that Turkey is finally beginning to catch this basic perspective.

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