Neglecting small fluctuations, we can conclude that unemployment rate has been stable around 9 percent for the last four months.

Unemployment figures announced on Tuesday are consistent with the “soft landing” scenario. Still, this does not necessarily mean that there will be soft landing as recent developments in Europe risk the reliability of this scenario.

I tried to open up the subject in my previous commentary: according to the way things evolved during the first four months of 2012, the landing might not be as soft as expected. The main reason is that unfavorable developments in Europe might damage Turkey’s access to foreign funds by lowering risk appetite. At the same time, the moderate economic contraction across Europe – excluding Germany and some small countries – might become severer, affecting Turkey’s exports negatively.

The first one, if realized, implies an upwards pressure on exchange rates and thus a hike in inflation. This might make things much more difficult for the Central Bank (CBT). With inflation significantly above the target, the CBT is already implementing a high-interest rate policy. So, if realized, this might cause the Bank to push interest rates up further.

Besides, a drop in exports further weakens already sluggish growth performance. In that case, for it has multiple objectives, the CBT can seriously consider not raising the interest rate. The first option, that is raising interest rate, would weaken growth further. On the other hand, not raising or reducing interest rate might push up inflation. The CBT has been claiming that it has policy tools other than interest rate. So, it might use the required reserve ratio but the outcome does not differ as the Bank has put itself in the growth-inflation dilemma by declaring multiple objectives.

And here is the outlook of labor force statistics: In my previous commentary I argued that seasonally and working day adjusted data must be assessed with care. We must ignore slight changes in figures. For instance, seasonally and working day adjusted unemployment rate has demonstrated a slight increase month-on-month, but this is negligible. Neglecting such fluctuations, we can conclude that unemployment rate has been stable around 9 percent for the last four months.

I want to assess the figures on the basis of raw data as well. Comparable statistics are available for January 2005-February 2012. Comparing unemployment in February since 2005, we see a bright picture: the lowest unemployment in a February since then was recorded in 2012 with 10.4 percent. The second lowest was 11.5 percent in 2011.

On the other hand, in February 2012 labor force participation rate decreased year-on-year. If it had not, unemployment rate would have been higher in 2012, around 2011’s 11.5 percent. Indeed, employment rates in February 2012 and 2011 being same are harmonious with such picture. Still, we can conclude that the outlook is favorable as unemployment rate is lower than that it was since 2005.

Similarly, seasonally and working day adjusted figures also state that unemployment in February 2012 is the lowest rate recorded since 2005 though the rate remained constant over the last four months. Unemployment figures are consistent with the soft landing scenario because the downwards trend in the figures have stopped lately, in the first place.

This commentary was published in Radikal daily on 17.05.2012