What does the IMF’s 4% growth forecast mean?

BY FATIH OZATAY

It may be thought that the GDP growth rate isn’t important but the share many people have in GDP is declining, they work minimum wage, and the share of uninsured employees to total employees is substantial. I could say that perhaps they would be right if growth rate remained below the potential growth. If the growth rate is too low or the economy contracts, unemployment increases. Although many people don’t benefit from the growth, their situation becomes worse in case of contraction. There is an asymmetrical effect.

I’ve emphasized three leading indicators: The OECD’s weekly tracker of economic activity, daily electricity consumption data, and the monthly real sector confidence index (RSCI). The ‘noise’ increases in the indicator as the frequency rises. The change in the 15-day average electricity consumption and economic activity data developed better than the previous data. Yet, they signal a significant economic slowdown, just like the RSCI.

Considering the possible reasons behind the results, our economy may not only slow but also shrink. Internal reasons are as follows: The difficulty and cost increase in finding external resources due to increasing risk premium as a result of poor economic policy, reduced consumption expenditures as a result of purchasing power eroded by high inflation, the FX demand created by the high CAD, USD 183bn that has been pain in a year, a record high negative real interest rate, the possibility that some companies will have operation capital difficulties following the decline in the loan increase rate as a result of recent decisions, and the postponement of investments due to increasing uncertainty. External reasons are as follows: The increase in difficulty in finding external resources due to the Federal Reserve and European Central Bank’s interest rate hikes, the recession possibility of major economies, and the fact that exports will adversely be affected by the decline in these economies’ growth rates, the supply contractions raised by the Russia-Ukraine war, and the energy bottleneck in winter.

The IMF upgraded Turkey’s economic growth to 4% for 2022 and 3.5% for 2023. There is a 1.3-point hike for 2022 and a 0.5-point surge for 2023, compared to its previous forecast.

Think about the 2018-2019 crisis. Annual growth was 3% in 2018 and 0.9% in 2019. However, our economy contracted in Q4 2018 and Q1 2019. Moreover, employment significantly declined as the construction sector was adversely affected by these developments. Employment fell by 800,000 between the end of the first half of 2018 and the end of 2019. Let’s examine the IMF’s 2022 forecast from this perspective. The Turkish economy grew by 7.3% in Q1 2022. The growth is likely to be similar in Q2. Let’s assume it at 7%. The IMF’s growth forecast of 4% for one year complies with the following growth path: The annual growth rate of 4% in Q3 and the annual contraction rate of 1.9% in Q4. What do these quarterly values mean: the real GDP growth remains almost unchanged without growth in Q3, and it contracts by 4.3% in Q4.

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