Recent evidence of low growth

It appears that the low Gross Domestic Product (GDP), which has been prevailing since 2012, will continue to deteriorate.
Last week, the Turkish Statistics Institute (TurkStat) published quarterly statistics for employment and economic activity in the main sectors for the first quarter of 2015. The GDP figures for the first quarter will be revealed on June 10, just a few days after the general elections, but the recent figures already confirm the pessimistic forecasts for the first quarter. It is quite possible that this year the average of 3 percent economic growth will drop further.
According to TurkStat, recent seasonally adjusted figures present an evident contraction in the construction sector. Employment decreased by 2.6 percent in the construction sector during the first three months of 2015 compared to the previous quarter. This is not an exceptional event. Starting from the second quarter of 2012, employment in this sector has continuously decreased. The number of construction workers decreased by almost 23 percent in three years. The boom in this sector, which was one of the main factors behind the high economic growth in 2010-2011, lost ground to an excess supply in recent years. As contractors have difficulty selling their accumulated stock they have been obliged to decrease the quantity of new startups.
The industrial sector also experienced a contraction of employment in the first quarter by 0.7 percent. The situation in the industrial sector is not as serious as in the construction sector since employment slightly increased by 0.7 percent on a yearly basis. Since the increase of production is almost double the employment increase — a modest development — demand and productivity is observed at the aggregate level of the Turkish industrial sector. However, evolutions in the subsectors are rather confusing. The sector carrying industrial growth seems to be automotives. Quarter to quarter employment increase reached 2 percent and the yearly increase 3.6 percent for automotives. On the other hand, employment in the non-durable consumption goods sector contracted by 0.9 percent in the first quarter and stagnated during the last four quarters.
As for the service sector, it continues to flourish. Turnover rose by 1.5 percent in the first quarter compared to the last quarter of 2014 and by a robust 6 percent on a yearly basis. However, a slowdown of economic growth is quite perceptible: From the first quarter of 2013 to the same quarter of 2014 turnover had increased by 15 percent. On the other hand, service sector employment decreased exceptionally by 0.1 percent in the first quarter but the yearly increase is 1.8 percent. The service sector has been responsible for the declining labor productivity in the Turkish economy in recent years because employment was increasing more rapidly than the value added. So, a slowdown of employment might be considered a good event in terms of a better quality of economic growth but certainly not for unemployment, which is already well over 10 percent.
To sum up, with the exception of the service sector, economic activity is rather sluggish in the industry sector and quite bad in the construction sector. What is serious is that Turkey may not exit the famous and”medium income trapand” through developing the service sector, all the more so since services are largely dominated by non-tradable goods that are not exportable. Now, Turkey needs export-led growth. Exports are only growing slowly, despite the depreciation of the Turkish lira. The main reason for this slow growth is the insufficient demand in the main export markets, particularly in Iraq because of the war and in Russia because of the economic crisis while the European economy has not yet fully recovered. The improvement in the current account deficit in recent years is due basically to the decrease of imports because of low domestic demand, and the depreciation of the Turkish lira.
The forecasts for GDP growth in the first quarter are ranked between 1.5 and 2 percent. What is worrying is that this growth, much slower than the previous growth of 3 percent, is likely to deteriorate the living conditions of the poor and probably those of the middle-class. Whatever the result of the general election this Sunday, the new government has to invent a new comprehensive growth strategy. Frankly, I do not observe any such signs.

SOURCE: Today’s Zaman