We were about to overcome our bad luck…

If you are not unemployed, at the Smic, a salary lower than the Smic a few times the SMIC, debtor in foreign currencies, debtor indexed to currencies or interests, retired, civil servant or similar, and if you are interested in the economy, the Turkish economy must be very interesting for you. . It is a treasure trove especially for curious economics students. Unique experiments are conducted, as rare developments take place. Moreover, it is possible for enthusiasts to soak up these experiences and their results without getting bored, smiling a lot, in short having fun. Without a doubt, a learning facilitator is having fun.

The story we were told just a few months ago was that we were about to beat our bad luck. What was this misfortune? The bigger our economy grew, the bigger we would have a current account deficit. Since the current account deficit is equal to net external debt, strong growth would be equivalent to an increase in external debt. Since the external debt could not increase continuously or the conditions would not always allow us to borrow easily, our current account deficit should turn into a surplus after a while. In other words, either our economy would contract or our growth rate would fall to a very low level. But he lived. We were going to disrupt this phenomenon with the economic policy that began to take shape towards the end of 2021. We were told the good news that we would now have a current account surplus.

What do you mean? The CBRT would lower the key rate by 5 points over the period September-December 2021, the lira would depreciate and reach a competitive level. In this way, some of the products that we imported in the past would be produced locally, because imports would become expensive, and therefore imports would decrease, and we would export more because the products that we exported abroad would be cheaper for foreigners . In addition, our tourist income would increase, because holidays in Turkey would be cheaper than water for foreigners. As a result, we would have a current account surplus instead of a current account deficit. Oh, in the meantime, inflation could have increased; That was it. If it turned out that we had overcome our bad luck, inflationary pressures would subside and inflation would start to fall.

For example, towards the end of 2021, the CBRT gave the following good news (taken from the MPC resolution text of October 21, 2021): “With the strong upward trend in exports, the improvement in the current account balance annualized is expected to continue for the rest of the year, and it is important for the price stability objective that this trend continues to strengthen. Similar statements were also present in the PPK texts of September, November or December. Likewise, the MPC decision of January 20, 2020 did not miss the good news of the current account surplus for 2022: “… the current account balance is expected to be in surplus in 2022. improvement in the current account balance is important for the objective of price stability.

It is clear that the objective of price stability is not in the middle. Not to mention price stability, the rate of price increase (inflation) has not stabilized yet; constantly rising. So, current account deficit? We had a current account deficit of $12.1 billion in the first two months of the year. Let me divide the current account deficit for each quarter of the year by the total dollar-denominated GDP for the last four quarters. The chart shows the current account deficit to GDP ratios between the first quarter of 2000 and the first quarter of 2022. The March current account deficit and first quarter GDP are not yet known. Let me forecast that will keep the current account deficit ratio at an optimistic (low) level: Either a current account deficit of $4.9 billion in March (a deficit of $17 billion over the first three months). Let our economy grow by 6.5%. The average increase in the PPI over the first three months of the year is 105%, while the CPI is 55%. It is on average 80%. In this case, the national income deflator (average prices of goods and services included in the calculation of GDP) increases by 80% and therefore the GDP in the first quarter of the year is 191 billion dollars (188 billion dollars in first quarter of 2021). This data tells us that the current account deficit will be 2.1% of GDP in the first quarter of the year (the red horizontal line on the chart and the last vertical bar in green).

Alas! In the 88-quarter period I’ve been talking about, we’ve had a current account deficit of this level in just two periods. Let’s give up beating our bad luck, if only our current account deficit hadn’t broken a record.

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