Industrial production data for December released on Monday Feb. 9 showed that following the 0.93 percent rise in the last quarter of 2011, the quarter with the lowest amount of growth in industrial production was the final quarter of 2014.
The 1.9 percent increase in industrial production in Q4 2014 brought about a 70 percent possibility of Turkey’s Gross Domestic Product having registered a growth of 1.65-2 percent in the final quarter of 2014. There is a 30 percent possibility that GDP growth in Q4 2014 could be 2.45 percent.
Despite these possibilities, regardless of whether Q4 2014 economic growth is the same as Q3 growth i.e. 1.7 percent, or whether it is 2.4 percent, the growth rate for 2014 as a whole will be in the 2.6-2.7 percent range. This figure is much lower than the average economic growth rate of 4.7 percent throughout the Republican period, and given that Turkey’s potential growth rate is 5.4 percent.
The Turkish economy, which grew by 9.2 percent in 2010 and 8.5 percent in 2011 and negated the pain of the global crisis that gripped the world economy in 2009, displayed a serious braking effect by growing 2.2 percent in 2012 and 4.1 percent in 2013. The growth rate remaining at the 2.7 percent level in 2014 as well indicates that the Turkish economy has experienced very well-controlled growth for three years.
Managing the inflationary and current account deficit risks comprise the primary reasons for an average growth rate of 3 percent in the 2012-2014 period. Double digit inflation and the 10 percent current account deficit/ GDP ratio in 2011 posed a serious risk for Turkey. The current account deficit and inflation were normalized when the “soft landing” model was adopted toward the end of 2012 and the growth rate of the Turkish economy was scaled back to 2.2 percent.
When the current account deficit and inflation ballooned again in 2013 after 4 percent growth şwas registered, the administrators of the economy reverted to 2012’s “soft landing” model in 2014 as well. A natural consequence of this is that the 4 percent growth targeted at the start of the year seems to have retreated to 2.6-2.7 percent toward the end of 2014.
DID CENTRAL BANK’S PUMPING TL INTO MARKET SPIKE EXCHANGE RATE?
The amount of Turkish Liras the Central Bank of the Republic of Turkey circulates in the market, or in technical terms TL liquidity, is very important for the functioning of the market. The market becomes more stagnant and the suffering of traders and small and medium-sized enterprises increases in direct proportion to the Central Bank’s reduction of TL in circulation. The Central Bank reduces money supply to the market in order to slow the economy down and thereby reduce and control inflation.
If the Central Bank keeps a very low amount of TL in circulation and dries up the amount of TL in the market, then the real sector starts facing problems in regard to its debit and credit payments, and struggles to convert checks to cash. This is why, as the risk of inflation recedes, the Central Bank loosens the purse strings, turns on the money faucet and pumps more TL into the market, thereby providing partial relief to the market.
According to available data, in the first days of 2015 between Jan. 16 and Jan. 29, the Central bank injected between 37 and 40 billion TL into the market. On Jan. 29, this cash injection suddenly rose to almost 52 billion TL, and 49 to 53 billion TL was injected into the market between Jan. 30 and Feb. 6. This means that it introduced 10-13 billion TL more into the market.
It is interesting that the period when the dollar exchange rate jumped from 2.42 TL to 2.50 TL coincided exactly with the period that the Central Bank fed an extra 10-13 billion TL to the market. I wonder if the relaxing of the market due to an injection of 10-13 billion TL made exporters who don’t like exchange rate fluctuations, firms with foreign debt, and households and the real sector in general, to opt to buy foreign currency with the more readily available TL.
It would come in handy to examine if the ready availability of TL fed the demand for foreign currency and therefore aided the exchange rate rising from 2.42 TL to 2.50 TL.
