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Lifting the Clouds Above the Economy

TÜSİAD ve Dünya Bankası’nın 12 Haziran 2017 de Istanbul’da düzenlediği toplantıda Dünya Bankası’nın “Haziran 2017 Küresel Ekonomik Beklentiler” raporu tanıtıldı.

TUSIAD in cooperation with the World Bank Group has presented the report of the World Bank called “Global Economic Prospects: a Fragile Recovery” on June 12, 2017 in Istanbul.

In his opening speech of the meeting the World Bank’s Country Director for Turkey, Mr. Johanness Zutt, mentioned that financial market disruption risk still exists. Therefore, the solution is to rebuilt the country’s financial buffers. Increasing the country’s trade and productivity will enable access to sustainable growth.

Turkey had a series of difficult years recently. Following the two elections, an attempted coup and the referendum weren’t the best help to the economic progress. It is observed that an excellent opportunity for sustainable growth exists in Turkey. The plausible cures are the tourism to recover and somewhat higher level of investments. The policy outlook would be concerned about the structural reforms that are needed and a solution to end the state of emergency.

Prevailing state of emergency denotes to the investors a country risk and an impression of lack of rule of law and these eventually scares the investors. As an response to TUSIAD’s demand to end the state of emergency, which was necessitated by the attempted coup of July 15 and restoring the rule of law; in his address to the TUSIAD members, during his recent visit, Mr. President Recep Tayyip Erdogan said “please tell me what relationship has the state of emergency has to do with the industrialists? If you identify them, I will solve them!” Business world agrees that an investment climate is a mood to be created among other things.

For the industrialist or investors to invest more in a country, one needs to see that freedom of speech exists and undisputable state of law of prevails, the Politian’s need to convince all the potential investors that the legal environment is fair and defending your point of view is possible at all times, from all potential perspectives. Therefore, in a globally competitive environment, it is in Turkey’s best national interest to preserve the rule of law, democracy and freedoms. Re-establishing the judicial system that protects freedom of thought and expression are the first steps to be taken.

In his opening speech the Chairman of the Board of TUSIAD, Mr. Erol Bilecik, mentioned in reference to the Revolution 4.0 and digital technological transformation as an important development that will define the strength of the countries in the 21st century and he said “we do not know what the new prevailing trade balances will be. It is very important for the business world to see what is coming and we need to determine the agenda items that make it possible for the investors to foresee or estimate the future. It is not possible to expect an explosion in the investment volume. Capital accumulation and productivity do not occur without sustainable growth.” That is, in the world, we are all going through a technological revolution and this creates an extra handicap for both the entrepreneurs and the employees and hence, for the investors a need exists to develop tools and an understanding to capture the benefits of this revolution.

It is expected that further cooperation with the EU and Turkey will contribute positively to the economy. Positive developments to cite are the new temporary tax relief, restructuring and incentives. These are positive developments. Also, the credit guarantee fund (KGF) provided 180 billion TRL of bank credits to the market. This is a considerable sum. However, these measures can only be temporary, if economic growth can’t be sustained. Whether the credit increases or other quick fixes or interventions seem to be quite positive, we can’t assume their effect will be sustainable with permanent effects. Despite the rate of annual growth around 5 % and the first quarter of 2017, Turkey’s accession to EU, the process and customs union revisions are very important for the business world.

Although the economy confronts serious risks due to uncertainty in the global economy, Turkey’s strong macroeconomic balance, dynamic population and young workforce provide great opportunities. Economic growth can be achieved by reforms that increase productivity as opposed policies that boost demand. To achieve macroeconomic stability in the short term, we strongly support measures to reduce inflation below the target of 5%. The implementation of structural reforms that builds confidence in Turkey’s economy and international position is of critical importance.

During the announcement of the first quarter developments report of the country, again in the morning of June 12, 2017, Deputy Prime Minister Mehmet Şimşek mentioned that the country performance is better and hence the news is better than expected: 2.8 % of growth comes from the domestic demand and 2.2 % percent comes from the international demand from abroad. Our biggest trading partner is the Eurozone and their recovery is expected to  accelerate this year. Monetary expansion continues. When we look at the big picture, both external and local demand continues to be supportive. Reforms are necessary. He also mentioned that “it is possible to make 5% growth a stable growth for Turkey”. When we look at the components of the growth, we see that it is consumption driven and the release of credit lines have a definite positive effect at increase in consumption. Here, yet, we need not go into the consequences of demand or consumption driven growth, but only wish to have a sustainable growth for the country.

As a remark to the report, Professor of Bahçeşehir University, Mr. Seyfettin Gursel referred to the existence of a persistent or constant 4% inflation. This needs to be addressed once we are there.

World Bank Group President Jim Yong Kim said in the announcement of the report in Washington DC on June 5, 2017, “With a fragile but real recovery now underway, the countries should seize this moment to undertake institutional and market reforms that can attract private investment to help sustain growth in the long-term. Countries must also continue to invest in people and build resilience against overlapping challenges, including climate change, conflict, forced displacement, famine, and disease.”

Ayhan Köse, the director of the of the World Bank Group’s Development Prospects Group,  in his presentation in Istanbul of the midyear for update of prospects, said “Global Economic Prospects: a Fragile Recovery”. He also said “when we look at the head of the economy recovery is underway. Increase in commodity prices and trade in goods and industrial production has increased. Corporate bond spreads are down.”

Growth among the world’s seven largest economies is expected to increase from 1.7 % to 1.9 %. Growth among the world’s largest emerging market economies (EM7), among which are China, Brazil, Mexico, India, Indonesia, Russia and Turkey, the growth is expected to increase from 3.5 % to 4.1 %. Only decline is expected to be in MENA. China is slowing down. Contribution to global growth of the world comes from G7, the other 1/3 comes from EM7 and still the third 1/3 comes from the rest of the world. The expected growth for the world is expected to increase from 2.7 % to 2.9 %.

Fiscal positions in the emerging markets are critically important for the growth of the countries. Major risks that need to be cited in the emerging markets can be down size risks, elevation of policy uncertainty, stress in financial markets, and escalation of protectionist measures where tariffs are declining among others. Primarily these issues need to be cleared. Mr. Köse also referred to the geopolitical risks, as the investments in these markets have become less. “In monetary and financial sector polices fiscal balances are deteriorating; we need to find ways to sustain fiscal sustainability. Also, regarding structural policy making, it is the time to act and to make medium term plans” said Mr. Köse. For global policy coordination, one needs to address global economy with global solutions and be involved in global challenges like climate change.

So, in conclusion Ayhan Köse said that the implementation of the policies is the key and he remarked that “regarding the risks, the clouds are lifting and it will be possible to see the sunshine during the sunny summer ahead of us.”

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