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Comments on Economic Expansion

Şevket Özügergin

Of course, it is a pleasure to see this trend continuing in the second quarter after the growth of 5.2% in our economy in the first quarter of this year and the realization of a growth of 5.1%. Growth means investment, production, export, employment and prosperity. There is no point in repetition as the comparative figures of growth over the course of the week, distribution by sectors, the quality of the growth and the future have been published. In this respect, we will try to make some general interpretations about the subject.

It is important that the growth is achieved almost entirely in the basic sectors.

The growth in agriculture was 4.7% (growth contribution 0.19%) and the increase in services was 5.7% (growth contribution 1.27%), while the increase in industry was 6.3% (5.1%)

While the driving forces of growth in the first quarter of the year were public and private sector expenditures, the sectors that pulled up the growth rate in the second quarter were private and public investments and exports. The increase in private and public investments in the second quarter is 9.5% and the contribution to growth of 5.1% is 2.9%. However, it is understood that a significant portion of the growth in this area is due to investments in the construction sector. Because investments in machinery and equipment, which make up fixed investment, declined by 8.6%. This investment sector is experiencing a decline for 4 periods. This is an indication that the measures taken have not yet fully turned into investments. In the construction sector, there is the matter of excess supply as well.

We are glad to say that growing is increasingly export-oriented.

The 10.6% increase in exports provided a 2.25% contribution to growth. The recovery in the European economy, which is our biggest export market, the positive developments related to Russia which is a significant market, the economic vitality brought by the arrangements of the Credit Guarantee Fund, the exemption of such loans by Eximbank to be applied to the exporters, the daily additions in terms of euro has accelerated such exports as the cost of such loans is very low. However, there is no change in exports. Unless the share of high-tech products in export items increases, it will not be easy for exports to gain competitive edge in the long run. Imports, the other foot of foreign trade, increased by 2.3% in the second quarter and had a negative contribution of 0.57% to growth.

As we noted above, public and household spending, which affected economic growth in the first quarter of the year, slowed down in the second quarter. Public spending decreased by 4.3% from a 97% increase and household spending from 3.6% to 3.2%. In other words, public spending has a negative effect on growth.

It is clear that loans over 200 billion TL originated from the Credit Guarantee Fund, which was started to be used last year, contributed significantly to the growth rates of VAT, SGK premiums and some tax collections this year. Some economists estimate that this contribution is around 5%. An important issue is whether such subsidies will continue or what incentives will be put in place. Because unsustainable growth rates that are steadily increasing or decreasing increase uncertainty.

International financial institutions are revising upward estimates of Turkey’s growth forecast for 2017. As a matter of fact, the US investment bank raised the estimate of J.P. Morgan from 4.6% to 5.3% and from the international investment bank Goldman Sachs to 5% to 7%.

Turkey is in a very positive environment in terms of financing the growth of the country. US President Trump’s failure to go through with large expenditure investments, the billions of dollar burden brought on by the last hurricane, the expected low economic growth, the ongoing monetary expansion in Europe and Japan, and the likelihood that the FED will postpone interest rate hikes, caused the hot money to flow into developing countries and meanwhile to my country. It is not known how long this situation will continue. However, there are other things to keep in mind as the hot money flow continues and various financial supports are given to the market. At the beginning of these are interest rates and inflation. Finally, balance between growth rates and these economic parameters is important. It seems like the majority of the responsibilities fall into the hands of the Central Bank.

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