Turkey, this week, has made a radical change in the way it calculates its gross domestic product (GDP), creating a shock effect both regarding its revised results and methodology.
Of course, countries do such revisions from time to time to increase the reliability of their data and to measure their numbers in a more accurate way. Nevertheless, the recent revisions make some of Turkey’s macroeconomic variables look healthier, according to many experts. Besides, Deputy Prime Minister Mehmet Şimşek said the revisions were made to meet international standards in a better way. In this manner, the main revision was completed by the Turkish Statistics Institute (TÜİK) in efforts to comply with the System of National Accounts (SNA-2008) and the European System of Accounts (ESA-2010), in a bid to meet the standards of the European Union
that the country aims to join. GDP was calculated using annually finalized data, based on production, expenditure and income approaches, regardless of periodic GDP estimates.
With the new calculation method, on Dec. 12, some 80 million Turks got a nearly 20 percent boost to their average standard of living – on paper at least. TÜİK said the 2015 GDP stood at $861 billion, from $720 billion before the revision – adding $141 billion to the size of the economy virtually overnight. The growth over the previous decade now averages more than one percent compared to the previous calculations.
There are some key revisions in the calculations. First of all, TÜİK has now started using data directly from the national income administration and the Social Security Institution data, to include small- and medium-sized enterprises’ role in the economy, rather than just big-scaled enterprises. The data from the services sector has also been extended now, among others.
However, some key “buts” start here. First, the institution took 2009, when Turkey’s economy contracted 4.7 percent, as the base year, but used the 2012 data for the country’s calculations. According to experts, another year, for instance 2012, when the economy fared better, should have been taken as the base year to reach healthier results. TÜİK officials gave an unusual explanation on this point and said they had taken 2009 as the base year, mainly by taking the prices of that year as the base. Yet, they added they set 2012 as the matching year, which is more important for them. In previous calculations, the matching year was 2002.
“2012 was thus considered by us as the year the general economic panorama emerged,” they added.
Secondly, some extraordinary figures have emerged after the revised calculations. For instance, the country’s saving rate in 2015 was revised up to 24.8 percent from the previous 15 percent. The low saving rate has always been one of the key problems of the Turkish economy due to its high dependence on foreign sources, especially in energy. Now, does Turkey have savings in efficient rates? The country’s GDP in 2015 was also revised from more than 4 percent to 6.2 percent, but it is questionable whether this revised rate really reflected the country’s actual performance that year, when the negative effects of a high liquidity party had already started to hit emerging countries, including Turkey.
In the end, Turkey needs to take more measures to rebound its economy under the dark clouds of various global and domestic factors. Under the revised calculations, the Turkish economy shrank by 1.8 percent in the third quarter of 2016 and worse may occur as the Turkish Lira weakens.