Turkey Catapulted Above India as Government Revises GDP Math

  • New methodology dramatically improves growth performance
  • Turkey’s five-year average expansion now among world’s best

Where reforms and a series of interest rate cuts failed, new accounting methods have succeeded in delivering a $140 billion boost to Turkey’s economy.

That’s how many economists are interpreting Monday’s gross-domestic product data, whose methodology is prompting a host of eye-popping revisions. Where last year’s GDP had been previously reported at $720 billion, the updated arithmetic shows it to have been $862 billion, pushing Turkey past the Netherlands to take its place as the 17th largest economy worldwide.

For Turkey, 2015 was a year of two general elections, terrorist attacks in major urban centers, record lira weakness, and the lowest levels of economic confidence since records began -- and yet the economy still grew 6.1 percent, revised up from the 4 percent the old data showed.

The new calculations, which take the recessionary year of 2009 as their base, improve the previously reported figures for 14 of the last 15 years, and boost the nation’s average growth rate of the last five years up to 7.1 percent, from 4.4 percent before. That means that since 2010, Turkey’s economy has grown faster than India’s, and only marginally slower than China’s.

“The revisions to past growth figures beg for an explanation," said Inan Demir, a London-based economist at Nomura International Plc. Take the 8.5 percent the economy is now reported to have grown in 2013, the year of the taper tantrum that saw Turkey among the hardest-hit emerging markets. Turkey’s 2013 rate of expansion -- now higher than China’s -- compares with a growth in industrial output of just 3 percent.

‘Different Pictures’

“I find it difficult to make sense of it," Demir said. “Growth and high-frequency indicators such as industrial output are portraying different pictures. They will either make revisions to industrial output as well, or we’ll end up with a disconnect between the two. And this will lead to concerns about the strength of growth data.”

This isn’t the first time Turkey’s economic data has been the subject of scrutiny. The primary budget surplus reported by the finance ministry -- and lauded by investors and ratings companies -- turns to a deficit when calculated using International Monetary Fund standards that discount one-off items. Similarly, the extension of Turkish banks’ offshore borrowing maturities that was hailed as the flagship economic improvement of 2015 fades away when you realize that to make that borrowing qualify as "longer-term," the banks were extending the time they had to pay back the loans by less than a week.

More Accurate

"Although this sounds like a step taken in the right direction," JPMorgan’s Yarkin Cebeci said in a note to clients, "the absence of detailed information (such as historical quarterly data, seasonal adjusted data and even detailed data regarding 3Q16) makes it very difficult to draw sound conclusions."

Still, some, like Odeabank AS’s Istanbul-based Economist Sakir Turan, said that the methodology may be more accurate in capturing the true extent of business activity because previous, narrower measures underplayed contributions from the black-market economy.

The revisions don’t just affect GDP but a whole host of other closely watched metrics that have that as an input. The savings shortfall once dubbed “the economy’s Achilles’ heel" by Deputy Prime Minister Mehmet Simsek, the country’s highest economic official, is after the revisions just as high as Germany’s, according to the acting head of the Turkish statistics office, Mehmet Aktas, who answered reporters’ questions in a press conference in Ankara after the data were released.

The agency TUIK, or Turkstat in English, has been without a director since the previous head Birol Aydemir left the post in February. His departure came shortly after he convened a press conference to protest new procedures that he said would "gravely affect" the collection of demographic statistics, Haberturk newspaper reported at the time.

Government Spending

While the changes to GDP calculation methods have been under discussion for some time, they were officially announced midday on Friday, just before Monday’s release for the third quarter. Data for the most recent period showed a year-on-year contraction of 1.8 percent, the first such dip since 2009, led lower by sectors including services, which shrunk more than 8 percent. The sharper-than-expected contraction was exacerbated by the previous year’s boost, as Barclays Bank Plc. pointed out in a note to clients. The only positive expansions were construction, which ticked 1.4 percent higher, and government consumption, which increased 24 percent over the same period of 2015.

The new data set is hard to compare to previous figures because the breakdowns are different, and the previous calculations were removed from the statistics office’s website. Seasonally adjusted figures for the third quarter weren’t ready in time and will be released in March, the statistics office said. A bulletin explaining 2015’s revised estimate, which was published on Monday morning, was removed from the website by the afternoon, and calls to the statistics office in Ankara about it weren’t returned.

Eurostat Relations

The new methodology is designed to conform closer to European ESA-2010 standards, the statistics agency said.

“Eurostat has provided methodological support to Turkstat in implementation of ESA 2010," a spokesman for the Brussels-based institution said in response to questions on Monday. “We are not yet in a position to give further comments on the revisions, as the data have just been published."

Aktas had a more colorful response. “There’s no mechanism for approval between statistics agencies and Eurostat, it’s a technical cooperation," he said, when asked if the new figures had been externally reviewed. “There’s been a Eurostat expert for 15 years who took a girl from us," he added, apparently referring to a Eurostat official who married a Turkish woman. “There’s someone who came here as an adviser, liked a girl here and took her. The technical relationship is extraordinary."

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