2012 growth rate at the 1 to 3 percent interval seems reasonable.

Yesterday, third quarter growth rate was announced at 8.2 percent. Growth figure for the first quarter, which had been revised upwards before, was updated in the same direction once again, to 12 percent. Therefore, Turkish economy grew by 9.6 percent year-on-year in the first nine months of 2011. Let me stress two points first.

As a preliminary assessment after the announcement of the second quarter growth data, I said, “we should expect that third quarter growth will still be high, though lower than the second quarter growth.” And yes, third quarter growth was lower than the second quarter growth but still above expectations.

Debates on whether the Turkish economy has heated up are irrelevant now, so everyone can take a deep breath. Inflation figures, high current account deficit, strong third quarter growth and the increase in industrial production in October have proven that the economy had heated up significantly during the first nine months of the year.

I had addressed two scenarios in the context of the preliminary assessment I have mentioned. The first scenario was based on the assumption that the European crisis would not intensify and the Fed’s decisions would determine the outlook of the world economy. After assessing some possibilities, I said, “I believe however that the realization of this scenario is least likely under the current circumstances.”

The second scenario assumed that the risk of the intensification of the European crisis was growing and balance sheets of European banks were worsening further. Again after discussing some possibilities, I said, “the Turkish economy contracts and unemployment escalates. A new QE decision by the Fed might limit these risks to some extent.” In the next commentary after the quoted one on September 13, I offered sub-scenarios. I revised Scenario 1 with a less optimistic perspective. Moreover, I discussed under which conditions the Scenario 2 could become less pessimistic. As you might have guessed, both conditions related to Europe: Will the European Central Bank increase lending via purchasing bonds of troubled countries? Will it issue Eurobonds to help troubled countries borrow more easily?

The title of my commentary on last Saturday, during which I assessed the outcomes of the European leaders’ summit, was “A positive but insufficient step.” In the light of the summit decisions, a scenario alike the second scenario I had drawn in September seems more probable. For now, the risk of contraction for the Turkish economy is smaller than the possibility of weak growth. As you might remember, the Medium Term Program, the OECD and the IMF estimated 2012 growth at 4 percent, 3 percent and 2 percent, respectively. A growth rate at the 1 to 3 percent interval seems reasonable. However, we have to keep in mind that actual 2012 growth might also be weaker than the estimates.

There are two main reasons why we should expect a sharp drop in growth rate: First, Europe is the recipient of almost half of Turkey’s exports. Europe being in trouble means that they will import less from Turkey. Second, European banks are expected to cut credit volume substantially. It will be more difficult for Turkey to access finance. The balance of payments figures announced yesterday proves this risk: monthly net capital inflow amounted US$ 7.4 billion in the first quarter, US$ 7.8 billion in the second and US$ 2.8 billion in the third quarter. Average net inflow for the last three months is US$ 1.5 billion.

This commentary was published in Radikal daily on 13.12.2011