Surprising Decrease In Growth

For a long time I have warned in this column about the threat of low economic growth and its consequences. From 2012 to the first quarter of this year the Turkish economy grew by only 3.2 percent in average, after having an average growth rate of about 6 percent in the first decade of the Justice and Development Party's (AKP) reign. Second quarter growth figures published Wednesday confirmed the reality of this threat. The Turkish economy grew on a yearly basis by 2.1 percent in the second quarter, lower than all forecasts, which were around 3 percent.
This sharp and surprising decline in gross domestic product (GDP) growth is due to an unexpected 0.5 percent contraction of the economy in the second quarter. All components of the GDP were in the red. From quarter to quarter private consumption decreased by 0.4 percent, private investment by 0.7 percent, government spending by 3.3 percent and exports by 0.7 percent. The imports increased by 1.3 percent in the second quarter, making the net export contribution to GDP growth negative once more.
Given these disappointing results, we can assert that the target of 4 percent growth will not be reached this year, despite visible positive signs in some leading indicators. The industrial index grew by 1.8 percent in July. Imported intermediate goods are also increasing. Bank loans' interest rates decreased to some extent in the last few months and interest cuts were made by the Central Bank of Turkey from May to July. We may expect a revival in domestic demand thanks to lower interest rates. Also, the harsh brake put on government spending might be moderately relaxed in the coming quarters. There exists a limited room in the budget for this relaxation. So we will probably witness a better growth performance in the second half of the year.
But I do not believe that this revival would be sufficient to push economic growth to the desired level, since the weak recovery in the eurozone, the main export market for Turkish goods, came to a total halt in the second quarter and wars are continuing to rage in the Middle East. Now the AKP rulers face another challenge. The low growth began to push up unemployment. The overall seasonally adjusted unemployment rate rose in the second quarter to 9.2 percent and the nonfarm rate from 11.1 to 11.4 percent. The leading labor market indicators predict the continuation of this trend.
The AKP has to tackle for the first time since it came to power in 2003 the problem of a long lasting deterioration in the economy. A GDP growth rate lower than 4 percent, albeit a quite high one compared to the sluggish growth in Europe, is not able to combat the high unemployment rate, since the number of jobseekers continues to increase. The low economic growth would also not permit further improvements in income inequality and poverty as has been the case in the past decade. It would also difficult for the AKP government to pursue improvement in public services given the low tax revenues which are due to low growth. Let me emphasize once again that without implementing productivity-enhancing economic reforms in the tax system, the labor market and in other areas, the Turkish economy will hardly be able to get out of the low growth trap.
That being said, I have no doubt that these politically difficult reforms will not be realized until the next general elections, which are to be held latest in May 2015. This is for a simple reason: the AKP seeks by all means to obtain the referendum majority in Parliament (330 plus seats), which is the only way for them to implement the presidential system by changing the Constitution. This performance requires a vote share of more than 50 percent, which is far from assured within the present economic context.

SEYFETTİN GÜRSEL (Cihan/Today's Zaman)