Skyrocketing current trade deficit and a low domestic savings ratio in the growing economy raise concerns about the country’s dependency on import products and booming demand, according to professionals.

The trade deficit was $10.4 billion in September, the biggest gap recorded, compared with $6.7 billion on September last year and $8.2 billion the previous month, according to figures published by Turkey’s Statistical Institute (TÜİK). Measures taken by Turkey’s Central Bank have thus failed to reduce the trade gap in September, an economist told the Hürriyet Daily News.

Turkey might have already experienced the “peak” in its trade deficit by last month, and it might take a few months for the Central Bank’s steps to show their effect on the economy, Erol Katıcıoğlu, a professor at Istanbul Bilgi University, told the Daily News yesterday.

“Still, the Bank might be pushing the envelope regarding its moves between restrictive and expansionary monetary policies, he added.

More expensive imports

The Turkish Lira’s recent depreciation “might be seen as [a chance] to put the brake on booming consumption and imports in Turkey,” said Katırcıoğlu, adding that imports had not slowed down, although they have become more expensive, with the lira’s depreciation.

The trade gap grew faster than expected by markets, which estimated the deficit to be around $8.5 billion in September, mainly due to a considerable rise in imports, whichtotaled $21 billion in September – $2 billion higher than the markets’ expectation – thus marking an increase of 35 percent compared to the same month last year. Meanwhile, exports accrued in line with expectations at $10.8 billion. The gap for the first nine months of 2011 was $82 billion.

“It is obvious that the annual trade deficit will be way beyond expectations,” said Erdal Sağlam, an Istanbul-based economist.

Demand has not been reduced yet in line with expectations from the economy administration, he said, adding that low saving ratios in a country with strong demand could trigger further problems down the line.

“We expect to see an economic slowdown starting from November thanks to the Central Bank’s new policy that employs the interest rate corridor to increase overall interest rates in the economy,” he said in a statement emailed yesterday.

Domestic savings

Structural problems are still preventing Turkey from forging a sustainable economy, said Erdoğan Alkin, a Daily News columnist. The savings ratio problem still remains a key issue ahead of the country, mainly stemming from income injustice and a failing tax policy, he said. The ratio of domestic saving to gross domestic product in Turkey is currently at record-low levels and is expected to go down to 12 percent by yearend, compared to 12.6 pct it was in 2010.
source: hurriyet daily news

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“Almost one in every five people in Turkey now shops online,” said Soner Canko, general manager of the Interbank Card Center (BKM), speaking at Cardist 2011 International Card and Smart Technologies Exhibition & Summit held in Istanbul. He said Turkey ranked among the biggest markets in Europe regarding online commerce. The number of Internet transactions jumped 37 percent in the first three quarters compared to the same period in 2010, reaching 91.4 million transactions.

Many international finance institutions watched Turkey with interest as the Turkish e-commerce market became promising with high revenue, Canko said.

Turkey’s service sector ranked first regarding spending in online platforms, growing 69 percent compared to the previous period. The total revenue from e-commerce platforms in the service sector reached 2.53 million liras in the first nine months of this year.

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The number of unemployed fell by 273,000 to 2.50 million people in the period compared to the same period last year.

Urban unemployment fell by 1.7 points to 11.5 percent, whereas rural unemployment fell by 0.8 points to 4.7 percent.

The number of employed people increased by 1.47 million people to 24.95 million people during the period between June and August compared to the same period last year. Non-agricultural unemployment fell from 13.6 to 11.8 percent whereas labor market participation rate increased from 50 to 51.2 percent in this period compared to the same period last year, according to TÜİK figures.

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The figure announced by the bank yesterday comes after a big campaign of dollar sales that started this week. The Central Bank sold more than $1 billion in total on Oct. 18 in a direct intervention and a daily auction. It sold an additional $750 million of dollars in yesterday’s auction.

The bank has sold $6.45 billion since it started its daily forex auctions on Aug. 5.
Turkey may be forced to raise interest rates “aggressively” like Hungary did in 2008 because the Central Bank cannot sustain its sale of dollar reserves to prop up the lira, according to the European bank Societe Generale.

“Can the Central Bank sustain its intervention policy for a long time? The answer is no,” Benoit Anne, head of emerging-market strategy at Societe Generale in London, wrote in an emailed response to Bloomberg questions.

Overnight lending rate rises

Despite the growing pressure, the bank’s Monetary Policy Committee kept its rate unchanged but raised its overnight lending rate yesterday as it sought to prevent significantly higher inflation hitting the medium-term outlook, in moves that were seen as supporting the lira but hitting bonds.

After a monthly committee meeting, the bank said it widened the interest rate corridor, raising its overnight lending rate to 12.5 percent from 9 percent.

It held its policy rate, the one-week repo rate, unchanged at 5.75 percent, and kept its overnight borrowing rate at 5 percent. Analysts said the changes would make it more expensive to speculate against the lira.

“The decision of the Central Bank shows it will allow interbank rates to settle at a higher level. This will make it more costly to carry short lira positions. The increase of the overnight rates is negative for bonds, but it is positive for the lira,” said Finansbank economist İnan Demir.

The bank raised the interest rate on borrowing facilities provided for primary dealers via repo transactions to 12 from 8 percent. The lending rate for the late liquidity window was raised to 15.5 percent from 12 percent.

“We are still assessing the full impact of this decision, which concretely is monetary tightening, and the possible consequences in terms of future monetary policy mix, but at a first glance, the monetary policy committee resolution seems aimed at deterring short-term local speculators who borrowed on the overnight funds and bought dollars, betting on sustained lira weakness,” said a note by TD Rates and FX Research.

“In this respect, raising the cost of funding could effectively reduce the incentive to shorting the lira against the dollar. At the same time, the bank’s statement contained some innovative elements that suggest more of a long-term drift in their policy stance,” the note said.

The bank said inflation will rise significantly in coming months due to excessive lira depreciation, base effects from unprocessed food prices and hikes in administered prices.

“The committee will not allow these developments to have an adverse impact on medium-term inflation expectations and the inflation outlook,” it said, explaining reasons for hiking the lending rate.

HSBC strategist Fatih Keresteci said the move to widen the interest rate corridor was hawkish.

“The cost of borrowing will increase and those willing to open long speculative positions would have to bear the cost. This is a kind of hidden rate increase. I also think there can be aggressive intervention in the short term,” he said.

The bank’s moves gave a small boost to the lira, which firmed to 1.8580 from 1.8630 beforehand. The currency has lost some 17 percent of its value against the dollar this year.
source: Hurriyet daily news

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According to the Foreign Trade Expectations Survey conducted by the Foreign Trade Undersecretariat (DTM) the Expectation Index both for exports and imports are up for the second quarter of this year. The Export Expectation index has gone up by 20.2 points, while the import expectation index climbed by 15.4 points quarter-on-quarter. Foreign Trade Minister Zafer Çağlayan shared the findings of the survey with the media on Monday in Ankara.

According to Çağlayan, the study showed that the first quarter’s export expectation index of 122.7 increased to 142.9 for the second quarter this year. Any value above, below or equal to 100 represents an upward expectation, lower expectation and neutral expectation, respectively. The export expectations for the coming three months of May, June and July, export orders expectations, the current level of registered export orders and the level of export orders in the previous quarter account for the upward value of the index, Çağlayan also said.

On a regional basis, in the second quarter of 2011, the export expectations for the Middle East and North Africa (MENA) went down, while the export expectation for all other regions have strongly gone up. “However, the situation in Egypt and Tunisia is going back to normal quickly, and once the situation in Libya is resolved the Turkish investments in this country will rebound strongly, too,” Çağlayan explained. When it comes to target markets, Germany takes the lead in export expectations followed by the US, Russia and France.

Çağlayan told the media that the current registered export orders display seasonal normality, which is a sign of a complete recovery from the global crisis. On the other hand, the import expectation index of 113.7 went up to 129.1 in the second quarter of the current year. Import expectations from all regions are up again with the exception of African countries, albeit by a small margin.

The survey also questions the problems firms face while trading internationally. The three main problems exporters face that the survey identified are the increase in the price of raw materials and intermediate goods, energy prices and the exchange rate. According to the survey, 72 percent of exporters name the exchange rate as negatively affecting the sector. About 23 percent of importers, on the other hand, said the high value of the exchange rate plays as an incentive to import goods.

Çağlayan drew attention to the exchange rate’s impact on the competitiveness of Turkish firms globally, underlining that a high-valued lira makes exports expensive for foreigners. He also stated that the Central Bank of Turkey’s latest policies have contributed to this fact. Commenting on Erdem Başçı, the incoming president of the central bank, Çağlayan says Başçı has grown into a fine economist and deserves the position. He believes that Erdem will focus not only on price stability but also on financial stability as well, taking up where his predecessor, Durmuş Yılmaz, left off. “Focusing on price stability itself is no longer enough,” Çağlayan said.
Effort to reduce foreign dependency a priority

Çağlayan said the current government has been working on several issues in order to reduce the foreign dependency of the sectors when it comes to input markets. According to the information he shared with media, his ministry and the Ministry of Agriculture plan to cooperate on increasing the domestic cotton harvest due to higher-than-normal global cotton prices. The textile sector imports close to 1 million tons of cotton a year, at a cost of $5 billion.

Çağlayan also mentioned efforts to reduce dependency on pesticides, fertilizers and other chemical products used in the agricultural sector, which are mainly imported. “The import of chemical sector products is another main contributor to the current account deficit [CAD] and we will continue to find solutions in order to address this issue,” he said.

Accusing the EU of becoming the most protective trade zone, Çağlayan says the former is setting up high barriers for Turkish goods, not allowing them to move freely in the EU zone. Touching on Turkish investments in Libya, he added that the government is doing everything in its power to help those firms and to protect investments in Libya. “According to the agreement encouraging and protecting investments in both countries that was signed between Libya and Turkey, investments in Libya are under full guarantee of the Libyan government,” Çağlayan says.
source: todays zaman

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The Central Bank has cut interest rates by 75 basis points since December to help slow capital inflows, while increasing reserve requirements to cap growth in loans and contain the current-account deficit. The bank last increased the reserve requirement for one-month deposits to 15 percent from 10 percent on March 23.

“The Central Bank did not design this policy for this year and this policy cannot be successful in three months,” Ümit Leblebici, deputy general manager at TEB, a unit of France’s BNP Paribas, said in an interview Monday in Istanbul. Policy makers will keep the rate at 6.25 percent “for at least 2011” and current reserve requirements “will continue into 2012 and possibly 2013,” he said.

Survey pointing to a hike

The Central Bank will probably raise borrowing costs by a half point to 6.75 percent in the fourth quarter followed by a similar increase in the first three months of next year, according to the average of at least six estimates in a Bloomberg surveys of analysts.

“I take sides with the camp who believe that the Central Bank policy is not bad,” Leblebici said. The verdict on the whether this policy was right depends on inflation remaining contained over the next two months, he said.

Leblebici said he did not expect the Turkish Treasury to sell new Eurobonds this year, after the Treasury raised 180 billion yen ($2.2 billion) in the largest sale of Samurai debt by a sovereign borrower in a decade on March 11.

“Borrowing in the Samurai market was enough and we will see new borrowing in 2012,” he said. The government doesn’t need to sell new debt and it will wait for the right conditions before considering a new sale, he said.

TEB plans to start selling the first tranches of a 900 million liras ($584 million) of bonds in May or June, Leblebici said. The maturity will be between six months and two years, he added.

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The deficit rose from $2.7 billion to $6.1 billion in the same month of 2010, the Central Bank in Ankara said Monday on its website. The median forecast in a Bloomberg survey of nine economists was for a gap of $6.3 billion.

The cumulative deficit for the 12 months through February was $54.8 billion, or about 7 percent of estimated gross domestic product. The government’s medium-term plans forecast a gap of $42.2 billion, or 5.4 percent of GDP.

Restraining the current-account gap is the bank’s main policy priority, Erdem Başçı, a deputy governor of the Central Bank, said March 29. The bank has cut interest rates by 75 basis points since December to help slow capital inflows, while increasing reserve requirements to cap growth in loans. It had forecast that those increases would take effect in the current quarter of the year.

Net foreign direct investment was $497 million in February, bringing the total for the year to $1 billion, compared with $973 million in the same period of 2010, the bank said. Foreign investors bought a net $1.8 billion in Turkish government bonds in February and sold $554 million in shares, it said.

Exports rose 22 percent in February to $10.1 billion, while imports surged 49 percent to $17.5 billion, the statistics office said March 31.

The bank recorded $3.3 billion in inflows in the net errors and omissions section of Monday’s data release.

Call for conscious

Commenting on the recent figures, Rızanur Meral, chairman of the Confederation of Businessmen and Industrialists of Turkey, or TUSKON, told Anatolia news agency that the rise of the current account deficit could not be prevented through bureaucratic cautions and laws.

“All of society should be more conscious about the situation,” said Meral.

Tanıl Küçük, chairman of Istanbul Chamber of Commerce, or ICOC, told Anatolia that Turkey had to reconsider its growth model. Küçük said the country was likely to exceed the estimated total volume of the current account deficit of $42 billion by the end of the year.

“We become one of the top performing countries in growth rate by the end of last year but no other country has had [a larger] account deficit among the top growing economies like us,” he said.

“The policy of slowing down the domestic economy by narrowing down the credit volume in order to challenge the high deficit now brings more questions to mind,” said Çetin Osman, chairman of Adana Trade Chamber. “The recent figures indicate that most of the domestic demands have been met through increasing imports.”

Turkish Lira strengthens

The Turkish Lira appreciated for a fifth day against the dollar after the Central Bank’s report reflected an increase in capital inflows.

Turkey’s currency strengthened 0.2 percent to 1.508 per dollar at 11:23 a.m., heading for its strongest closing in four months.

“The market saw the current-account data positively,” Cem Tözge, fund manager at Ata Yatirim Menkul Değerler, told Bloomberg. “The figure was very close to expectations but the absence of a negative surprise caused the dollar-lira to go below 1.51. The net errors and omissions show that hot money continues to park in Turkey.”

Turkey’s currency has rallied 5.7 percent versus the dollar in the past month, the third-best performance of more than 20 emerging markets tracked by Bloomberg, benefiting from the so-called carry trade, in which investors buy currencies of countries with low rates and invest in the assets of nations with higher yields.
source: hurriyet daily news

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The 2011 World Economic Outlook report of the IMF read that the global economy will grow by 4.4 percent this year and by 4.5 percent in 2012. IMF published the first and second parts of the report Monday.

The economic outlook report expects Turkey’s GDP to grow by 4.6 percent this year and 4.5 percent in 2012. Rapid economic recovery in Turkey is forecasted to continue according to the economic outlook report of the IMF. The consumer price index, which grew by 8.6 percent in annual basis last year, is expected to show a 5.7 percent increase in 2011 and 6 percent in 2012.

According to the IMF report, while Turkey’s proportion of current account balance to GDP was minus 6.5 percent, this ratio is forecasted to be minus 8 percent in 2011 and minus 8.2 percent in 2012. The IMF report predicts Turkey’s unemployment rate, which was 11.9 percent last year, to be 11.4 percent in 2011 and 11 percent in 2012.

The report highlighted that even though the economic growth follows a low level in developed economies, unemployment rates remain high. However in developing economies, there seems to be a strong growth rate and low unemployment rate, the report read.

In developed economies the annual economic growth rate is expected to be 2.4 percent this year and 2.6 percent in 2012. In the developing countries, this figure is expected to be 6.5 percent.
source:hurriyet daily news

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Disclosing the details of the new budget at a press conference on Saturday, Finance Minister Mehmet Şimşek said Turkey had prepared its budget while taking into consideration its own needs and the conditions arising from the economic crisis, underlining that talks with the IMF would “proceed on the premises set out in the budget.”

The size of the 2010 budget is TL 286.93 billion. It includes a 5.06 percent wage increase for civil servants, in two equal semiannual installments of 2.5 percent. With expected revenue of TL 236.8 billion, the deficit will be approximately TL 50 billion.

According to experts, Finance Ministry bureaucrats maintained caution while drafting the budget. The economic gloom in Turkey will persist next year, and the government will stick to its policy of fiscal discipline, they note.

The minister stated in his comments that the General Directorate for Budget and Finance remained committed to the primary target of leading Turkey out of the crisis while working on the budget.

“We will clench our teeth to maintain fiscal discipline,” he said, adding that the government is planning neither to introduce any new taxes nor abolish existing ones.

The draft budget states that public investments will amount to TL 22.3 billion, and energy will enjoy the lion’s share of total investment. The second most favored sector in terms of its share in investment will be transportation. The government is planning to allocate a total of TL 1.5 billion to these two areas.

The Finance Ministry used the policies and figures proposed in the middle-term financial plan as a basis while preparing the new budget. The directorate tasked with drafting the budget also took requests from all ministries and other state institutions into consideration when trying to balance revenue with expenditure.

Şimşek said officials estimated that gross domestic product (GDP) would be TL 1.03 trillion for the year ahead while crafting the budget. Their prediction for GDP growth was 3.5 percent. Ministry bureaucrats anticipate a consumer price index (CPI) of 5.3 percent, $108 billion worth of exports and $153 billion in imports. The minister described their predictions for these major macroeconomic indicators as “quite realistic.” The minister said the projected revenue was raised and expenditures lowered from what they were in the 2009 budget in an attempt to reduce the budget deficit.

In the revised budget for this year, expenditures are estimated to hit TL 266.75 billion and revenue TL 203.93 billion, which means a deficit of TL 62.82 billion. This is a large jump of TL 52.4 billion over the original expectation for the 2009 budget. Şimşek said TL 44.8 billion of this extra deficit stemmed from a sharp fall in revenue amid falling economic activity during the worst crisis since the Great Depression. Only TL 7.6 billion resulted from an increase in expenditures, he added. According to the draft budget, transfers to social security institutions will rise 7.3 percent over this year in 2010 and will reach TL 57.7 billion. The government will transfer TL 31.8 billion to the Social Security Institution (SGK) alone in terms of deficit financing.

The budget envisages allocating TL 8.4 billion to agriculture, and of this amount, TL 5.6 billion will be in subsidies.

The share of revenue coming from local administrations was raised by 17.6 percent to TL 19.1 billion. Including all transfers, the budget envisages allocating a total of TL 22.1 billion to local administrations next year.

According to the draft budget, TL 525 million will be spent on the Village Infrastructure Support Projects (KÖYDES). The allocation for the Scientific and Technological Research Council of Turkey (TÜBİTAK) saw an incremental rise to reach TL 625 million.

The minister vowed that the government would do everything necessary to protect low-income earners, with proper wage increases for civil servants, retirees and workers.

Like previous budgets, the 2010 budget allocates the largest share of funds to education, as the Education Ministry’s annual budget once again surpasses all others, including the projected amount for defense expenditures.

The Health Ministry’s budget was increased by 12 percent. A Health Ministry project that promotes primary health care and facilitates visits to family practitioners rather than state hospitals, currently being tried in several pilot districts, will be extended to cover all 81 provinces.

The state will exclude health expenditures from the main budget for the first time next year, with the exception of parliamentary deputies and their dependents, soldiers, indigents holding green cards and prisoners. Expenditures for treatment and drug expenses will be transferred to the SGK, and the state will allocate a certain amount of funding to the SGK every year. Next year health services for civil servants will also be handled by the SGK.

Scholarships for students will increase 13.8 percent, while the allocation for distributing free textbooks to students has been increased by 6.4 percent.
source: Today’s Zaman

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EBRD is the first international finance corporation, among many others, to revise Turkey’s economic growth in a positive direction.

The bank had published a report estimating Turkey’s 2010 growth to be 1 percent. The bank has revised that outlook to 3 percent.

The economies of eastern and southern Europe including Turkey, will experience an economic contraction this year, however, signs of recovery will begin next year, said the EBRD.

Turkey’s economy will contract nearly 6 percent in 2009, however that contraction rate is still well above contraction expected in other countries in the region.

According to the EBRD, while southeastern European countries are experiencing a recession of 6.2 percent this year, the mean contraction will be 8.7 percent for eastern European countries.

Turkey will have the fastest growing economy in its region in 2010, said EBRD, with the average economic growth expected from the region is 0.7 percent. Turkey’s economic growth for that period was revised to 3 percent growth, which marks four-fold growth over the average.

Turkey’s robust banking industry will play a major role in the fast recovery, according to EBRD. The increase in the European Union’s demand and foreign trade with those countries will be a major motivator of 2010 recovery, according to the bank. Other factors will include increasing demand from EU member countries and increasing foreign trade figures. Meanwhile, unemployment will continue to be the top concern for Turkey and other countries in its region.

The EBRD also revealed plans to prioritize Turkey in regards to investments, with specific support aimed at the banking industry, the tourism sector, small- and medium-sized enterprises, media, infrastructure investments, energy, real estate, health, information technologies, agriculture and food.
source: Hurriyet daily news

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Strauss-Kahn, who is currently in İstanbul to attend the 2009 Annual Meetings of the World Bank Group and the International Monetary Fund, noted that he expected the Turkish economy to recover rapidly from the ongoing global economic crisis, saying that the Turkish economy has made great progress thanks to reforms previously implemented in the financial sector. As a member of the G-20, which forms the backbone of the global economy, he said, Turkey is not only one of the leading economies of the world, but also a dynamic member of the IMF.

According to the fund’s latest World Economic Outlook, released last week, Turkey’s economy is expected to grow 3.7 percent in 2010, after a global recession caused the country’s economy to contract an estimated 6.5 percent this year. The inflation rate in the country is expected to stand at 6.2 percent this year before increasing to 6.8 percent in 2010. The report estimated that Turkey’s current account deficit to gross domestic product (GDP) ratio would increase from 1.9 percent this year to 3.7 percent in 2010. Furthermore, Turkey’s quota in the IMF is expected to increase to more than 1 percent. Analysts note that the Turkish economy will be the fastest growing in Europe in 2010.

Speaking at a conference yesterday on the sidelines of the IMF-World Bank meetings, Professor Nouriel Roubini, a well-known economist, said macroeconomic and financial indicators show that the Turkish economy has been strong in the face of the crisis. He stated that a deal with the IMF would benefit Turkey in terms of the psychological influence it would have on investors and the market, even though there is no technical necessity for such a deal. Meanwhile multibillionaire investor George Soros stated that investments should continue in order to encourage recovery from the crisis.
source: Todays Zaman

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The collapse in European Union demand coupled with receding foreign capital inflows makes a standby agreement with the International Monetary Fund desirable for Turkey, according to New York University Professor Nouriel Roubini.

Roubini, who predicted the crippling financial crisis as early as 2006, told a crowded audience in Istanbul that a global recovery will probably be U-shaped – slow and with low growth rates for years. Speaking at an İş Investment-sponsored event Friday evening, the economist, dubbed “Dr. Doom,” said unprecedented central bank interventions helped mitigate the “systemic risk” to the world economy but that downside risks remain.

“The Turkish economy was fundamentally sound in the eve of the crisis,” he said. “But then the contagion came, resulting in a collapse in European Union demand [for Turkish goods]. The corporate sector halted capital expenditure investments. Turkey is a very open economy and its recovery depends on the recovery of the eurozone.”

Despite this, Turkey should continue macro-structural reforms and “go back to a sound fiscal framework,” Roubini said, adding that there might be some questions about whether the government’s recently announced medium-term economic program would be enough.

Under these circumstances, a deal with the IMF would be “positive for investor sentiment,” he said. “Technically, there is no need for such a deal. But it would signal that a robust policy is in place.”

The structural reforms Roubini advocated included reducing taxes, reigning in the unregistered economy, providing labor flexibility and reforming the social security system. “Your recovery demands on two things,” he said. “Sound domestic policy and good luck.”

Instead of just waiting for a eurozone recovery, Turkey should diversify its exports and head toward the markets in the Middle East, Central Asia and north Africa, Roubini added. “I am moderately optimistic on Turkey,” he said.

Shape of the recovery

Reflecting on the U.S. economy, the Istanbul-born economist predicted a U-shaped recovery. A double-dip recession, namely a W-shaped one, is “not my main scenario, but downside risks to that end remain,” he said. If the recovery would be “anemic,” the losses stemming from commercial real estate, credit cards, auto loans and student loans would be much higher than the $3.4 trillion predicted recently by the IMF, he said.

An exit from the current stimulus policy would be “very difficult,” as the massive rally in all asset classes since March clouds predictions, according to the renowned professor. “How much of this [rally] is driven by fundamentals and how much of it comes from [excessive] liquidity?” he asked, recalling that the fiscal easing by policy makers amounts to a massive $10 trillion. “Japan exited too soon in 1998 and had a double-dip recession.”

The current rally might end in a “correction,” he said. “Assuming a weak recovery, flow of macroeconomic news would be worse than expected. In U-shaped recoveries, surprises are negative rather than positive.”

Weak consumer demand

Recalling that official unemployment in the U.S. has reached 9.8 percent while real unemployment is at 16.8 percent, Roubini said this is a key reason why growth would be “well below potential” for the next few years. It is not only job losses that slash consuming power of U.S. citizens, he said, recalling cuts in wages and hours worked in many workplaces.

Roubini named other reasons for anemic growth as weakness in credit growth, the painful debt structuring in the corporate sector that hampers expansion, a large budget deficit that would hit private demand and a large current account deficit.

“Places such as the U.S., Britain, the Baltics and Dubai ran large current account deficits,” he said. “While countries such as Japan, Germany and China ran large current account surpluses. China was the producer of last resort while the U.S. was the consumer of last resort. The glut of capacity in the U.S. economy and weak demand will also result in a fall in global aggregate demand.”

Roubini was more bullish on emerging markets. “They don’t have financial leverage and liabilities,” he said. “They have cleaned up their financial systems [before]. Their potential growth rate is much higher, and they will recover at a reasonable rate next year.”

But these are not “engines of global growth,” he added. “China’s total gross domestic product is at $3 trillion, a fifth of the U.S. GDP. A total of 2.2 billion ‘Chindian’ citizens spend $1.6 trillion annually, while 300 million U.S. citizens spend $10 trillion.”
source: Hurriyet daily news

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