Scale of Turkish economic ‘rebalancing’ unknown – columnist

Turkey’s government is terming an economic downturn as “rebalancing” but the degree to which activity declines is shrouded in mystery.

Local economists are still officially optimistic about Turkish economic growth this year, predicting an annual rate of about 3 percent. Next year is a different matter though, with average estimates likely to be revised down to about 1 percent, said Erdal Sağlam, a columnist at Hürriyet newspaper.

Much will depend on how the government acts prior to March local elections – pay rises for public sector workers and the retired are likely to have a significant impact on first quarter economic growth, Sağlam said. With an eye on ballot boxes, it is unlikely that that government will keep the increases below 25 percent, the anticipated rate of inflation for the period, he said.

Most economists expect inflation to peak in the first three months of the year, believing that the government will extend a period of tax incentives due to end in December for another three months, Sağlam said. Furthermore, Ankara will most likely freeze energy prices and even reduce them should raw material costs continue to fall, he said.

While the chances of another currency crisis are dissipating, the government must be careful not to upset the balances in the economy by making policy errors, such as a decision this month to reduce Treasury auctions of domestic debt. The country is not out of the woods yet and prudence is needed, Sağlam said.