HUMAN WRONGS WATCH

Human Wrongs Watch

Turkey’s economy rebounded vigorously following the global crisis, but in the process external and domestic macroeconomic imbalances emerged. Growth averaged close to 9% in 2010-11, with strong job creation, says a new report.

*Originally a church, later a mosque, and now a museum, the Hagia Sophia was first built by the Byzantines in the 6th century. Credit: Robster1983 at English Wikipedia.

At the same time, the current account deficit widened to around 10% of GDP and consumer price inflation rose to over 10%, adds the Economic Survey: Turkey 2012, elaborated by the Organisation for Economic Co-operation and Development (OECD), which groups 34 industrialised countries spanning the globe, from North and South America to Europe and the Asia-Pacific region.

The ongoing global slowdown helps reduce these imbalances somewhat, but they remain a source of vulnerability as the economy continues to depend strongly on foreign confidence and capital inflows in a fragile international environment, says OECD.

“Rebalancing has started but needs to be consolidated.”

Competitiveness Gains

In addition to the domestic slowdown, exchange rate depreciation in the course of 2011 brought about competitiveness gains and a reduction in the current account deficit but these gains may prove transient if the large inflation differentials with trade partners persist, it adds.

The recent deceleration in inflation benefitted from favourable exchange rate pass-through effects and food and energy price developments, but anchoring inflation expectations at low single digit rates has been elusive to date.

“A durable rebalancing calls for continuing action on macroeconomic and structural fronts.”

Turkey’s Monetary Policy

A new monetary policy regime was put in place in late 2010, to try and contain domestic demand without fuelling capital inflows and excessive exchange rate appreciation, the report says.

“It helped improve competitiveness and rebalance demand but inflation remained above target and bringing it down should regain priority.”

Fiscal policy kept public finances on a sustainable path but may need further tightening to support monetary policy and to build up sufficient buffers in case the international environment weakens.

External competitiveness remains crucial for Turkey’s economic performance both in the short and the long term, according to OECD.

“Competitiveness gains are necessary to rebalance domestic and external demand, and increase the pace of employment, income and domestic saving growth.”

“They are needed to improve the employment opportunities of the low-skilled majority of Turkey’s working age population and help reduce poverty and foster social cohesion.”

Price Competitiveness Essential

Given Turkey’s trade specialisation, improving non-price competitiveness is important, but maintaining price competitiveness is essential, according to the report.

“Turkey’s working age population and help reduce poverty and foster social cohesion. Given Turkey’s trade specialisation, improving non-price competitiveness is important, but maintaining price competitiveness is essential.”

Structurally strengthening the business sector is crucial to boost productivity. Too many of the new businesses and jobs are created in the informal sector and the skills of the majority of the labour force remain too low, the report adds.

“Both exert a drag on productivity and competitiveness. To encourage hiring and growth in the more productive formal sector, far-reaching labour market reforms and a more flexible labour contract are indispensable.”

Human Capital

“To strengthen human capital, enrolment in the education system has been considerably improved, the report adds, but there remains ample scope to improve quality and equity. In addition, upskilling the existing labour force should be a policy priority.

Potential output and living standards could be raised by up to a quarter by 2030 relative to a baseline projection according to reform scenarios embodying labour market and educational reforms, it concludes.

*Image: Originally a church, later a mosque, and now a museum, the Hagia Sophia was first built by the Byzantines in the 6th century. Credit: Robster1983 at English Wikipedia.

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2012 Human Wrongs Watch

Posted on 27/07/2012 at 06:08 in Middle East, Others-USA-Europe-etc., The Peoples   |  RSS feed |   Reply   |   Trackback URL