 |
  |
|
 |
BUSINESS & ECONOMY
Turkey to outperform rest of world in 2006, says Morgan Stanley
December 17, 2005
After decades of instability, Turkey is at last breaking the curse of boom-bust cycles. At the end of every year, investment bank Morgan Stanley's global economics team takes up the challenge of preparing a new set of forecasts covering the next two years. Of course, economic analysis is an evolving endeavor requiring continuous assessment of endless possibilities.
In the case of Turkey, their projections have been significantly more "optimistic" than market expectations in the last three years, and the latest assessment is apparently no exception. Despite the expected global slowdown in 2007, the Turkish economy will continue to outperform the rest of the world, as the growth rate of real gross domestic product (GDP) accelerates from 6.2 percent this year to 6.5 percent in 2006 and then to 6.8 percent in 2007, according to London-based economist Serhan Cevik.
This is, to say the least, a bold forecast, since most economists, focusing on the “deterioration” of Turkey's current account balance, keep expecting a costly adjustment.
The bank's out-of-consensus call on Turkey's economic and financial markets has so far been right on target but could global imbalances bring an abrupt end to the “age of stability” in Turkey?
“We believe that such a risk, always present, is increasingly becoming unlikely,” said Cevik.
Volatility bound:
The moderation of economic and financial volatility is key for sustainable growth. Prudent policies and structural reforms have turned Turkey's notoriously volatile economic landscape -- a reflection of dysfunctional politics and distortionary policy-making -- into a terrain of stability.
“Time-varying volatility readings of all macroeconomic and financial variables have declined to the lowest levels in history,” said Cevik. “And this dramatic moderation of volatility has functioned like a technological innovation that raises total factor productivity and thus the economy's potential growth rate beyond historical extrapolations.”
This is indeed the key factor driving above-trend economic growth and rapid disinflation towards single-digit territory in the past four years. In the future, the moderation of the business cycle should lead to a marked reduction in the probability of negative output shocks and therefore support higher investment rates.
Contrary to the consensus estimate, the economy is growing at an above-trend pace. Real GDP growth accelerated from 4.4 percent year-on-year in the first half of this year to 7.0 percent in the third quarter. The outcome confirms the strength of the Turkish economy even in the face of higher commodity prices and interest rates around the world. The latest statistics highlight a sweeping improvement, including a 6.9 percent increase in consumer spending in the first three quarters of the year.
“However, the behavior of investment rates is what we care about most in assessing the sustainability of growth momentum,” said Cevik. The private sector's growing investment appetite, coupled with the rationalization of public-sector spending in favor of infrastructure projects, raised the gross fixed investment rate by 18.1 percent in the January-September period of this year (and by 75 percent, on a cumulative basis, in the last three years) to 26.5 percent of GDP.
Investment growth:
The expansion of Turkey's supply frontier will keep disinflation on track. With higher corporate earnings and the declining cost of capital, the bank expects investment spending to grow by 18.8 percent next year and 11.4 percent in 2007. In turn, higher capital accumulation, increasing Turkey's potential growth rate, will continue supporting non-inflationary output growth.
The economy, enjoying a cumulative increase of more than 30 percent in real GDP and disinflation from an average of 77.5 percent in the 1990s to 7.6 percent last month, has no doubt achieved an astonishing advancement. However, the future could be even far more exciting.
“We believe that the end of boom-bust cycles and convergence with the acquis communautaire of the EU -- reducing uncertainty and improving institutional capabilities -- will strengthen Turkey's economy and financial markets,” said Cevik.
Moreover, the pending harmonization of the country's national accounts with the European System of Accounts should increase the level of GDP and also improve key credit metrics (such as debt-to-GDP and current account deficit-to-GDP).
“All in all, we expect multiple credit rating upgrades towards the investment-grade status in the coming years and this risk reduction will underpin Turkey's economic and institutional modernization and accelerate its real convergence towards a trillion-dollar economy,” he said.
|
Business & Economy | Home |
|
 |
 |
As the Honorary Turkish Consul General for Georgia, it is my duty and pleasure to promote Turkey to the citizens of the United States and to encourage educational, economic, cultural, touristic and humanitarian relationships between the United States and the Republic of Turkey.
Mona Tekin Diamond
Turkish Honorary Consul General for Georgia
|
|
