There may be zero or negative growth in Q4
The Turkish economy fell behind with a 5.2 percent growth rate in the second quarter after growing 7.3 percent in the first. First quarter growth was announced as 7.4 percent in the first official statement and then, after a minor revision, updated to 7.3 percent.
GDP growth in the first half of the year was 6.2 percent. Turkey’s economy grew by 7.8 percent compared to the previous year over the 12 months up to and including the second quarter of 2018.
It is very important to be able to talk about the annual 7.8 percent growth as of the end of June. But the growth data lags behind and reflects the realities before the end of the term measured. Today, for instance, we are talking about data from two and a half months ago, and we know that a lot has changed in Turkey in these two and a half months, and is continuing to change.
Therefore, let’s pay attention to the growth rate in the first half of the year but let’s also focus now on the third quarter and the last quarter we are in.
Looking back while forging ahead
Although it is not directly related to the economy, a coup attempt like July 15 has a negative effect on the size of the GDP. A big natural disaster like the gulf earthquake in 1999 has an unbelievably negative effect on the economy. Conversely, if we discover a very rich mineral deposit and begin to extract it immediately, a positive impact on GDP occurs. If we develop a product that will shake the whole world and generate tremendous demand, and sell it like hot cakes, the GDP will climb up.
In the short-term, there is always the possibility of a natural (or manmade) disaster but the chances of a discovery or innovation that will create a windfall for Turkey’s economy are slim. So we will remain in the current situation until the end of the year. It is possible that we will neither have a negative or a positive development and will experience a calm period relative to the economy. So, can we make an estimate for H2 by making an assumption based on the quarterly data of the self-repeating GDP? Possibly…
It’s clear, however, that past year trends should be discounted when making a forecast based on a technical analysis for the second half of this year. We all know that our economic course is not very bright. At the very least, we can’t talk about an economy that is developing well. There is a general problem in the real sector, the bottleneck is very obvious in the construction sector, the exchange rate is going up very fast, inflation is going up. This is our situation in the third quarter. Can the economy roar with the wave of a magic wand in the last quarter? The answer is obvious.
Recession regardless
The USD exchange rate average was 3.81 in the first quarter of the year. That average rose to 4.37 in the second quarter. We have not completed the third quarter yet but the average of 70 days so far is around 5.37. If the exchange rate remains in the 6.40-6.50 band, as it has re- cently, it means that the average in the last quarter of the year will be around these levels.
High exchange rates on imports are inevitably pushing up the cost of production. Let’s recall that intermediate goods prices in the domestic producer price index increased by 39 percent over the last year and energy prices by 42 percent. Is it possible for a reduction in production growth, or even negative growth, under these conditions?
The only consolation for the third quarter is tourism but its contribution will not compensate for the loss in other areas.
Here, we have tried to make an estimate by taking into account the balance of the transition from 1998 to 2017, from quarter to quarter and the same quarter of the next year. Let us once again say that we have considered the equilibrium ratios slightly discounted due to adverse conditions specific to this year. This study shows that this year there could be a 2.5 percent to 3 percent growth in the third quarter compared to last year. For the last quarter, calculations show a ratio between 0.5 percent and minus 0.5 percent. The total growth in of 2018 will be in the range of 3.5-4.0 percent.