Given the current environment, discussing this detail might seem trivial; yet it is important to consider tiny details when forecasting economic prospects.
Industrial output index figures for November are released: industrial output grew after the fall in October. Such monthly fluctuations are not critical; we rather should focus on longer-term trends. Industrial output growth rates (percentage) in January-November period were 10.7 in 2011, 3.1 in 2013, and 2.7 in 2013. The evolution of the rates throughout the year suggests that output growth has shown a declining trend until the late 2012 and moved up slightly until November 2013.
Industrial output growth was remarkable in 2011 in line with the impressive GDP growth rate. So I rather want to focus on 2012 and 2013. Please note that industrial output growth figures in the first 11 months in 2013 were slightly below those in 2012, when GDP growth rate was as low as 2.2 percent. On the other hand, GDP growth is expected to reach around 4 percent in 2013. In other words, compared to 2012, 2013 was better in terms of GDP growth but worse in terms of industrial output growth.
Industry accounts for a fourth of GDP
Is there anything odd here? Not really. After all, industry accounts only for a fourth of GDP. The value added of the services sector, which has a large share in GDP and GDP growth, is affected largely by industrial output (take transportation, for instance). But at the end of the day, GDP growth and industrial output growth are not necessarily at par.
As you might remember, private sector consumption and investment in the first half of 2012 were too weak to ensure a satisfactory GDP growth. So, GDP growth was kept up by increasing public sector spending. There is nothing unusual here. In fact, this shows that Turkey’s fiscal policy now has a room to maneuver, which it lacked in the 1990s due to high budget deficits.
In other words, Turkey is now able to bolster up growth by raising public spending without pushing up the risk perception about the economy - of course caution is needed in doing this; you don’t want to push your chances too hard. In this line, the sharp increase in public spending in the first half of the year might be one reason for GDP growth and industrial output growth not moving harmoniously. Of course this assumption holds only if the rise in public spending was influential on the services sector.
Given the current environment, discussing this detail might seem trivial; yet it is important to consider tiny details when forecasting economic prospects. The current mood of the world economy is obviously not growth-friendly. It is most likely that in 2014, Turkey will crave for the GDP growth rate of 2013 which is below the long-term average. Should the existing tension intensifies; we even might be discussing the risk of negative growth.
This commentary was published in Radikal daily on 09.01.2014
