The June data on the Turkish industrial production, released by the Turkish
Statistical Institute (TurkStat), give mixed signals concerning the influence
of the economic crisis on the Turkish economy. The figures show that although
industrial output is still down from last year's levels, industrial production
is moving upward. The Turkish economy is no longer in free fall, but a
permanent economic recovery might not materialize soon.
Industrial production dropped by 9.7% in June 2009 on a year-on-year basis,
maintaining a continuous decline since the second half of 2008. After
industrial production contracted by a record 23.8% in February, the decline in
industrial output started to slow down in March, and this process has
continued. As a sign of this partial recovery, in June the contraction rate
dropped to single
digits for the first time since November 2008. Moreover, in June industrial
output increased by 7.3% compared with May. This follows on the previous month,
when industrial output increased by 0.8% compared with April.
According to the main industrial grouping's classification, the highest decline
in June compared with the previous year was in capital goods, down by 29.7%.
Production declined by 10.6% in manufacturing industry, 7.9% in mining, and 7%
in energy.
Economists suggest that the slowing of the decline over four consecutive months
and the rise in output on a month-on-month basis has bolstered expectations
that the contraction might be bottoming out. Tanil Kucuk, chairman of the
Istanbul Chamber of Industry, said that although 9.7% is a very high rate of
decline under normal conditions, "looking at the economic situation for the
past year, we consider this development the lesser of two evils and find it
promising".
Experts believe that there is a visible upturn in the Turkish economy. Other
economic figures also lend partial support to this optimistic outlook. Central
bank data showed that the current account deficit dropped 65% in June on a
year-on-year basis. In the first half of 2009, the current account deficit was
also down 75.7% compared with the same period last year.
Turkey's foreign trade deficit is likely to decrease by the end of the year and
could drop to $27.2 billion, according to the projections of TurkStat based on
the figures from the first half of 2008. The foreign trade balance recorded a
$69.8 billion deficit at the end of last year. The exponentially growing
foreign account deficit and foreign trade deficit were major concerns for the
Turkish economy prior to the global financial crisis. The slowdown brought
about by the crisis had a positive effect by curbing Turkey's imports. Although
exports also declined as a result of the shrinking global economy, the central
bank estimates that Turkey's export volume will grow as the global economy
starts to recover.
The improvement is attributed largely to the economic recovery plans which the
government launched in the first half of the year. Through several stimulus
packages, the government introduced temporary tax cuts on automobiles, home
appliances and housing in order to generate domestic demand and reduce the
impact of the crisis on the country. The effect of the economic packages in
this recovery is evident, especially in household appliances production, where
there is a clear increase. The production of durable consumer goods increased
by 7.2% and perishable consumer goods increased by 1.8%. However, the
production decline within the automotive sector has continued.
Nonetheless, experts estimate that the effect of the domestic demand generated
by the stimulus packages might wane after August. Therefore, they expect the
contraction in the economy to persist in the third quarter of 2009, and perhaps
beyond. Though finding the recent figures promising, industrialists'
representatives had expected more than "hope" and have called on the government
to take additional precautions to get the country out of recession.
However, given the heavy costs of the previous packages on the treasury, the
government is unlikely to pass a large-scale stimulus package. Due to public
spending ahead of the March local elections and the declining state revenues as
a result of the crisis, the budget deficit has already surpassed the estimates
at the beginning of the year.
While the deficit is expected to reach 70 billion Turkish lira (US$47 billion)
at the end of the year, the government is trying to keep it to about 60 billion
lira. Toward this end, it has already raised some taxes and announced cuts in
spending, including healthcare. Therefore, rather than introducing new packages
to stimulate demand, the government is working on new measures to narrow the
budget deficit. Although tax hikes and limitations on government spending might
narrow the gap, they may also curb demand and negatively affect growth.
The Turkish economy may no longer be in free fall, but it is unclear how
sustainable the recovery might prove. Since the effect of the domestic stimulus
packages appears to be short-lived and the government is unlikely to initiate
any new stimulus packages, the economy's sustainable recovery depends on
external demand, and hence developments within the global economy.
Fortunately, the upward trend in the Turkish economy is accompanied by the
recent news coming from the world markets. American, Chinese and other large
economies have reported the positive effect of economic packages in preventing
the deepening of the global recession. While signs of recovery have raised
hopes that the global downturn might be coming to an end, it is too early to
expect an expanding external demand to stimulate the Turkish economy.
Therefore, it might take more time before Turkey can move out of the recession.
Saban Kardas is an associate instructor at the Political Science
Department, University of Utah, USA.
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