Fourth quarter will not be substantially different from the third, which implies that fourth growth will bring slow growth rather than economic contraction.

After all the speculations and rumors at this column, we finally learned the gross domestic product (GDP) figures for the third quarter. My speculation was that GDP growth in the third quarter will be lower than it was in the first and the second quarters. I was correct, but not precise: growth rate was even lower than what I forecasted: 1.6 percent against my forecast at 2.5 percent. Hence, in the first nine months of the year, Turkey’s GDP grew by 2.6 percent year-on-year.

Investment expenditures dropped by 5.9 percent

Some of the key risks concerning Europe and the US dissolved only partially and as late as in September 2012. Thus, uncertainties were in the hike during the first nine months of the year. Indeed, real sector confidence index, a key indicator of the private sector confidence in the economy, has been in decline year-on-year since October 2011, which was expected to hit down on private investment expenditures. In line with expectations, Turkey’s investment expenditures decreased by 5.9 percent year-on-year. Quarter three suffered the sharpest drop in private investments as was expected. Also, private consumption expenditures decreased by 0.6 percent during the first three quarters. But this almost certainly was driven by the sharp drop in the consumption on durables. On this occasion, I would like to recall my recommendation to TURKSTAT to classify and release consumption expenditures under three categories: durables; semi-durables; and non-durables.

The reason why I put emphasis on private investment expenditures is that it is one of the two main determinants of growth under the current circumstances. Though it has a small share in GDP, a sharp drop makes it the main cause of weak GDP growth. Its “contribution” to growth in the third quarter was minus 2.2 points. The second key factor is export performance, specifically non-gold exports. It was exports that kept GDP growth rate in the positives, with a contribution of 2.8 points. Although this is a high contribution, current global circumstances marked with slow growth have still been weakening Turkey’s export performance.

Slow growth

I speculated on the fourth quarter’s growth rate as well, using leading indicators for October and November: in September, industrial output increased by 6.2 percent. Some commentators read this as a signal that Turkey is back on the growth path. However, I argued, we should avoid assertive comments relying solely on zigzagging monthly data. And leading indicators like credit figures and confidence in the economy were not in support of this theory. Furthermore, three-month averages revealed that output picked up only slightly year-on-year since the beginning of 2012. The picture was not remarkably different in September, either. Anyways, you have read all of these before at this column.

The volatility in figures continued in October with 5.7 percent drop in industrial output. Again caution is needed; we must avoid sharp interpretations (rather pessimistic ones this time). After all, fourth quarter will not be substantially different from the third, which implies that fourth growth will bring slow growth rather than economic contraction. The enigma here is whether or not growth in quarter four will be even worse. Capacity utilization figures combined with other indicators tell us that this is probable.

This commentary was published in Radikal daily on 11.12.2012