Economic Outlook:Turkey’s ‘Economic rebalancing’ showed deceleration in the third quarter
External demand’s contribution to growth is decelerating. In the second quarter, a greater than expected slowdown occurred. The %4.7 growth in the first quarter diminished to %2.1 in the second quarter.
According to Deloitte’s Economic Outlook report, Turkey’s economy showed a greater decline than expected in the second quarter. On a broader perspective, Turkey’s growth faces a clear struggle and this will continue unless structural reforms are implemented.
The report provides key information with regards to current and future outlook on the global economy along with Turkey’s growth figures, current account deficit and inflation. According to the report, the global economic growth is weak and unstable, and the growth prospects for all advanced economies are reduced for 2014. While the expectations for the Euro region diminished from %1.2 to 0.8%, USA and Japan faced downward revisions from %2.6 to %2.1 and %1.2 to %0.9 respectively. According to the report, regional growth rates favoring the US strengthen the dollar and under normal circumstances the continuation of this trend is thought to be the most likely scenario. Therefore, this means that investors generally become more selective regarding emerging markets. In this environment, the countries with stronger economic rigor to make the necessary changes will show greater performance.
A rebalancing period for Turkey is expected in 2014 and the first quarter results confirm this expectation. The report underlines that a greater than expected slowdown occurred in the second quarter, as the yearly 4.7% growth in the first quarter diminished to %2.1 in the second quarter. The volume of net exports is the main contributor to the growth in the second quarter. The trend of weakening growth is expected to continue as EU, one of Turkey’s most important export markets, still faces weak growth as well as the geopolitical problems in İraq and Russia further limit the growth of the exports. İt is noted that the unemployment rate (disregarding seasonal effects) is on the rise, reaching up to %9.9 in June as the decrease in growth is starting to affect the labor market. İt is also indicated that along with the unemployment rate increase, the inflation and current account deficit continue to keep its high levels while the growth slows down. In the face of all these developments, the report points out that there is a clear struggle in Turkey’s growth story.
Report highlights the need to focus on the supply side such as productivity and technology and the urgency of quickly realizing structural reforms. However, it also notes that following this roadmap does not seem to be realistic in the short term since next year is an election year. On the other hand, the creation of a new ‘investment story’ for Turkey highly depends on the elaboration of these reform initiatives.