Stop-go cycles
A recent study (Potential Growth: A Global Database, Sinem Kilic Celik, M. Ayhan Kose, Franziska Ohnsorge, F. Ulrich Ruch, April 2023, Koç University-TÜSİAD WP) finds that global potential growth has fallen down after 2008.
Accordingly, between 2010 and 2021, potential growth was below its 20002010 average by 0.8 percentage points in advanced economies, and by 1 percentage points in emerging markets.
This is normal because financial crises, recessions and the COVID pandemic subtracted from growth. Their impact is persistent and it could last even five years, especially recessions.
We have a lot of concepts –and accompanying models and measurements aiming at explaining the sluggish recovery after 2008. We have the debt super-cycle (Rogoff ), the financial cycle drags (BIS), the secular stagnation (Summers) hypotheses. The common factor is that all of them take for granted that markets are not self equilibrating, that along view approach should be adopted, and that we need fresh ideas and new models.
I am sure the potential growth rate of the Turkish economy has also fallen, given that total factor productivity has stalled. Also, the quality of education has worsened. Educated youth leave the country. Human capital will be getting scarce in the future. However, the economy continues to grow even though the potential growth rate falls. This is because the Turkish economy manages to find a way through selfengineered stop-go cycles.
One reason is that elections are held too often. Yet the more obvious reason is the habit to change course frequently and resort to unorthodox policies that induce artificial or irregular cycles.
All this looks unsustainable. Growth is predicated on household consumption and imports. Real earnings are so low that any nominal pay increase causes a wave of spending. This is true today also. Credit card expenditures and consumer credits soar. Even he earthquake didn’t stop that. Actually, we don’t see any economic impact at all!