The economic significance of 400 deputies

At first look, yesterday?s Turkish data releases seem to have discredited two-thirds of my last column, where I argued the economy was in a dangerous mix of slowing growth, persistent inflation and a stubborn current account deficit.

For one thing, according to official data released on Sept. 10, the economy grew 3.8 percent annually in the second quarter, higher than expectations of 3.3 percent. The main driver of growth was domestic demand, with private consumption and investment contributing 3.6 and 2.3 percentage points to growth respectively. External demand, on the other hand, shaved 1 percentage point off growth.

However, these figures are from the second quarter. The consumer confidence index, which had been a decent leading indicator of actual consumption until last year, has fallen two months in a row. With a weak Turkish Lira and an uncertain political landscape, it is unlikely to improve anytime soon. In fact, we may see a plunge in consumption once sales in a couple of sectors that are still robust such as while goods and passenger cars come to a halt.

Investment seems to be doing better, as the investment expenditures component of the real sector confidence index has been rising. However, according to statistics released on Sept. 8, the weaker-than-expected (0.3 versus 3.3 percent) annual growth in industrial production in July stemmed mainly from durable consumer and capital goods. Therefore, I do not expect much contribution from either investment or consumption to growth in the second half of the year.

In a similar fashion, the lower-than-expected July current account deficit ($3.2 billion versus $3.5 billion) may seem like a positive development at first look. However, the annual...