Yesterday I presented the basis scenario that I think will apply in 2010. In brief the scenario said: Over the last quarter of 2009 and the first half of 2010, the volume of funds banks and firms transfer abroad will drop moderately. And by the second half of 2010 net foreign debt usage will be zero. Global risk appetite (measured by VIX index) will remain at the current level. In line with the framework I discussed in the previous commentary, foreign demand will rise moderately as of the last quarter of 2009 in comparison with the year before.   Turkey's goods and services exports in real terms will rise slightly below 1 percent in each quarter compared to the same period the year before. During the last quarter of 2009 as well as over 2010, consumer loans will grow in real terms by slightly below 1.5 percent in each quarter compared to the previous quarter. For other types of credit, this stands at 1 percent. Risk appetite of foreigners, confidence in the economy and real exchange rate will remain at the current levels. Real value of public expenditures in the last quarter of 2009 is kept at the level for the same period the year before. This decreases by slightly more than 1 percent in the first half and by 0.5 percent in the second half of 2010. Under these circumstances, economy will grow in between 3.8 and 4.9 percent in 2010 and contract by 7 percent in 2009.

Now it is time to present the alternative scenarios. First alternative scenario is a bit pessimistic. This scenario might as well apply: in 2010, real volume of exports of goods and services will remain at the 2009 level. The basis scenario assumed that banking and corporate sector will pay $6.8 billion net foreign debt over the last quarter of 2009 and the first half of 2010. This alternative scenario assumes this amount will be $10 billion. Real credit expansion to corporate and banking sectors drops by 50 percent then the basis scenario. Despite this moderate deterioration, confidence in the economy does not fall down. Real value of Turkish lira and risk appetite of foreigners do not change. Under this scenario, pace of growth in 2010 is reduced by 1 point to 3-4 percent interval.

Third scenario is even more pessimistic: In addition to the deterioration given in the second scenario, now the risk appetite of foreign investors also worsens. However, this is quite low compared to that in the period where the impacts of the crisis were the deepest. In parallel to this, confidence in Turkey's economy decreases and Turkish lira loses value moderately. Considering the two indicators excluding confidence, we can say that we returned to the second quarter of 2009. Under this scenario, pace of growth is reduced significantly to 1-2 percent interval. To put it differently, growth rate decreases almost by 3 percent compared to the basis scenario.

I did not construct a scenario more optimistic than the basis scenario; I believe that the latter is optimistic enough. I would like to touch upon few more issues. Under all scenarios, growth in the first half of 2010 is more rapid compared to the same period the year before, whereas the pace is reduced in the second half. The main reason behind this is that the pace of growth in the first half of 2009 is weak (bad basis). Second, under the third scenario, investments are affected rather severely. I believe that the reason behind this is obvious: a climate where the confidence in the economy and the risk appetite of foreign investors fall and thus real value of Turkish lira decreases is not investment-friendly.

In short, Turkey's economy will grow in 2010 even in the case where the global climate deteriorates relatively. However, it is most likely that the pace of growth will be below the long term average growth rate. The pace of the growth will reduce as the climate continues to deteriorate. Of course the exact opposite is also possible.

This commentary was published in Radikal daily on 23.11.2009