Compliance problems of construction investments and relevant indicators

Ihave long been questioning the decline among machinery and equipment investments in Turkey. However, it’s not the case for construction investments, which have been rising sharply – and how sharply! They rose by 14% in the first quarter and 25% in the second quarter in comparison with the same periods last year. And those increases are already inflation-adjusted.

A study by economist Zafer Yukseler regarding GDP for the second quarter is valuable in this context. A subchapter, titled ‘Issues regarding GDP calculations,’ draws attention to the non-compliance between some of the sub-figures in the Turkish Statistical Institute’s (TurkStat) newly released GDP figures and some other indicators that have relevance for those figures.

Another issue the study discusses is the fast increase of construction investments. The study underlines that construction investments rose by an average of 110.3% (again, inflation-adjusted) between 2013-15 when you compare the new and the old calculation methods. And the increase observed in the second quarter of 2017 indicates significant inconsistency with some improvements such as ‘construction employment index,’ ‘number of hours worked in the construction sector,’ ‘building use permits’ and ‘construction employment figures from the household workforce survey.’ For instance, in the second quarter there are significant declines (in comparison with the same period last year). And the fourth indicator actually rose by only 0.7%. The only improvement consistent with the construction investments is the number of ’issued building licenses.’ Regarding the first quarter, four of these five indicators experienced a decline. There is another non-compliant indicator not mentioned in this study. According to data released by the Turkish Cement Manufacturers’ Association, domestic cement sales (quantitatively) were below last year’s figures for each and every month in the first half.

So, we return to the same point. It will be for the good of TurkStat to reconsider the new GDP calculation method (especially the significant changes made based on administrative records) censoriously. Likewise, it should also rake over its methods used for calculating macroeconomic indicators. If the main reason behind this inconsistency is the macroeconomic indicators, with new indicators to be released, this discussion over GDP would become healthier and new GDP data would be much more convincing. But if the real inconsistency behind the changes made over GDP calculations is based on administrative records – which I hope is not the case – it’s clear what they should do.