BY ASIM ERDILEK
TODAY'S ZAMAN- Yesterday I wrote about the spreading cautious optimism about the end of the global financial crisis, citing the November 2009 Organization for Economic Cooperation and Development (OECD) Economic Outlook report.
Although the report says there are signs of a recovery for 2010 and 2011, these signs need to be viewed guardedly due to skyrocketing public debt and the end of stimulus measures.
As for the report's projections, the good news is that the OECD area, which began to grow in the third quarter, is projected to grow faster over the next two years, assuming that financial conditions continue to normalize and the stimulus policies are scaled back gradually. For Turkey, the good news is that after an expected year-on-year contraction of 6.5 percent in 2009, the real gross domestic product (GDP), which after four consecutive quarterly declines rebounded strongly in the 2009-second quarter, is projected to grow by 3.7 percent in 2010 and 4.6 percent in 2011. Turkey's real GDP growth is predicated on the rapid recovery of real gross fixed capital formation, which is expected to have plummeted by 21.3 percent this year. It is projected to rise 4.1 percent in 2010 and 9.7 percent in 2011. Turkey's current account deficit as a percentage of GDP, estimated at 1.9 percent this year, is projected to rise moderately to 2.8 percent in 2010 and 3.3 percent in 2011. Both the OECD area and Turkey are expected to experience continued disinflation but avoid deflation this year and in the next two years. The bad news for both the OECD area and Turkey is that unemployment will rise through the end of 2010. Turkey's unemployment rate, significantly above the OECD average, after having risen from 10.7 percent in 2008 to 14.6 percent this year, is projected to rise further to 15.2 percent in 2010 before falling slightly to 15.0 percent in 2011.
As for the 2011-2017 projections, the good news for Turkey is even better: Average annual real GDP growth is projected at 6.7 percent, not just much higher than the OECD average of 2.6 percent, but actually the highest among all OECD countries. Turkey's inflation, measured by the private consumption deflator, is expected to fall from 5.4 percent in 2011 to 4.6 percent in 2017. Moreover, unemployment is projected to drop sharply from 15 percent in 2011 to 8.8 percent in 2017, much closer to the OECD average of 6 percent. These projections for Turkey assume a medium-term fiscal consolidation, based on the Justice and Development (AK) Party government's medium-term program that the budget deficit will be reduced from 6.6 percent in 2009 to 2.7 percent in 2012, and that the fiscal consolidation target will be achieved partly by reducing the share of public spending in GDP by about 1 percent in 2011 and 2012 and the rest by higher GDP growth.
For the OECD area as a whole, the report stresses the need to strengthen banks' balance sheets and the necessity of financial sector regulatory reforms, based on the lessons of the global crisis. As for structural policies, it recommends scaling back emergency industrial measures that subsidized production, such as those in the auto sector. It urges structural reforms, especially ones to increase labor market flexibility and reduce structural unemployment that could help raise potential output, depressed by the crisis, and facilitate fiscal consolidation. For Turkey, the report recommends that the government: (1) sustain the improved investor confidence, which has enabled declining risk premiums and real interest rates; (2) increase fiscal transparency and back the planned fiscal rule by specific consolidation measures; and (3) undertake structural reforms to enhance the business sector's competitiveness and to improve the economy's overall performance during the recovery.