Turkey's economy grew slower than expected in 2012 at a rate of 2.2 percent, according to data released by the Turkish Statistics Institute (TurkStat) on Monday.
The Turkish Statistics Institute (TurkStat) announced on Monday that gross domestic product (GDP) expanded by 2.2 percent in 2012, an outcome below market and government expectations.
Turkey's GDP grew by 9.2 percent in 2010, followed by an 8.8 percent expansion in 2011 but failed to meet the 4 percent expectation for 2012. The government had to revise their 2012 year-end growth targets two times last year. The 2012 figures mark the lowest GDP growth since 2009.
Market experts agreed on Monday that the economy had experienced what is called a “hard landing” with the below-expected growth rate. Turkey experienced strong growth, which was mainly supported by domestic consumption, between 2010 and 2011. The low savings rate and dependency on foreign energy sources -- which are subjected to volatile price increases -- led to a high current account deficit (CAD). As a result, the government has been working hard to reduce domestic consumption since early 2012. The government and the central bank separately implemented measures for a “soft landing” for the economy.
The data showed that the economy, which grew 1.4 percent in the fourth quarter, has continued growing for 13 quarters. However, the 2.2 percent growth lagged behind the predicted rate of 3.2 percent, bringing total GDP for 2012 to only $786.2 billion, down from $773.9 billion in 2011.
Commenting to Today's Zaman, Turkish Economic Association (TEK) President Ercan Uygur said that the fall in domestic spending in 2012 was not the sole contributor to the low growth and said that economic developments in the world also limited the flow of foreign capital into the country, which directly effects growth since the economy is reliant on exports. “At the end of 2012, many world economies also saw growth rates that were at least one point lower than their predictions,” he said.
Uygur noted that the lower demand, a result of the measures taken by the central bank to curb domestic spending, has been favorable for inflation and increasing unemployment. He also explained that Turkey's 2023 goals, which projects GDP to reach $2 trillion, are based on projections of not only the Turkish economy but the world economy as well, calling some of the predictions too ambitious.
Professor of economics at Marmara University, Erhan Aslanoglu, also confirmed that the economy had experienced a slowdown that was more than expected, adding that growth that is less than 3 percent is accompanied by signals of a recession while unemployment is inclined toward a rising trend. He noted that the central bank had tried its best to keep inflation and real interest rates at a reasonable level, but indicated that that the easing on measures by the central bank to reduce consumption based on borrowing should have come earlier than the third quarter of 2012. However, he also added that growth for 2013 would reach 4 percent.
Also speaking to Today's Zaman, the former vice president of the Prime Ministry's Privatization Administration (OIB), Suleyman Yasar, mainly held the central bank responsible for the low growth outcome, stating: “Turkey's growth stopped and 2012 became a lost year for the economy. Of course this is a hard landing. The measures taken by the central bank were too excessive and resulted in a decline in domestic consumption.” Yasar criticized monetary policymakers for risking the government's 2023 economic goals and acting naïvely, also calling on them to get over their fears.
Bahcesehir University's Center for Economic and Social Research (BETAM) also released a report following the announcement of the growth rate, stating that the decline in growth was sharper instead of the predicted soft landing. The report said that the economy has been on a declining trend for the past two years and stated that the growth rate, which was 12.4 percent in first quarter of 2011, went down to 1.4 percent in the fourth quarter of 2012. “The 2012 growth was based on the increase in net exports and the decline in domestic spending, which negatively affected growth,” the report stated.
In a written statement, Anatolian Lions Businessmen's Association (ASKON) President Mustafa Koca also commented on the hard landing of the economy and underlined that the zigzag in growth rates had severely affected planning in the private sector. “We all started 2012 with hopes of high growth but because of the low growth, our business estimations ended up being wrong, particularly for small- and medium-sized enterprises. The sharp decline has caused businesses many problems but hopefully 2013 will be a year of growth.”
He also expressed that the decline should be considered a reminder to review current policies and implement conventional methods that will bring about the desired results for the economy.
Government hopeful for 2013, sets growth at 4 pct
Finance Minister Mehmet Şimsek noted that 2.2 percent growth is a sign of success as many developed economies have been experiencing a slowdown, adding that growth for 2013 is predicted to be around 4 percent.
He added that despite the slowdown in the global economy, the deepening crises in Turkey's main trading partner, the eurozone, present geopolitical tensions and high energy prices, Turkey has acquired important gains as its CAD narrowed by $28 billion and inflation went down to its lowest levels in 44 years. “In last year, 1 million jobs were created while the country saw its lowest unemployment rates in the past decade,” he added in the written statement.
Furthermore, Şimsek explained that growth would speed up in a balanced manner in the next year, stating: “Parallel to the decrease in inflationary pressure and flexibility in monetary policies, the rising confidence will contribute to the recovery of domestic demand. Also, a healthy banking sector and a strong household structure will support growth as well. In this framework, growth is expected to be around 4 percent.”
Meanwhile, Economy Minister Zafer Caglayan expressed that the economy had experienced a “bitter landing,” noting that 2.2 percent growth is not a bad result but it could have been better considering the potential. Caglayan commented that the economy is capable of much better growth, blaming the central bank for “pressing the brakes too hard” -- something he had been criticizing for about a year. “In 2013, our economy will achieve faster and more stable growth with the contribution of the increase in domestic demand and net exports. In order to rank in the top 10 economies by 2023, we need to grow by at least 6 percent,” he said.