The New Economy and Dynamics in A Digital World
The New Economy and Dynamics in A Digital World
At the Economic Summit, that is organized this year by Boğaziçi University Department of Economics for the first time, current problems and future of Turkey and the world economy were discussed. At the event that was held on April 25th, 2019, Thursday, at Boğaziçi University Albert Long Hall, global expectations in the economy, economic growth, future scenarios for the world and Turkey, digitalization, innovations that will come with new banking and financial business models were discussed.
Future of Turkey and the world economy, as well as current problems of the economy, were discussed in detail at the Economic Summit, titled "The New Economy: Dynamics In A Digital World" and was organized by the Department of Economics of Boğaziçi University.
The experts; Ayhan Köse from the World Bank, Ahmet Göncü from the University of Xi'an Jiaotong-Liverpool, Holger Breinlich from the London School of Economics and Political Science were welcomed this year. Issues such as 10-year expectations for the global economy, digitalization, new banking and the possible economic consequences of Brexit were discussed from different perspectives.
What if the world economy cannot grow?
In his opening speech at the summit, the Head of the Department of Economics, at Boğaziçi University, Prof. Dr. Gökhan Özertan stated that, while organizing this summit, they aimed to overcome the disconnection between different stakeholders in the economy, such as the public sector, private sector and non-governmental organizations, and discuss the current issues together.
On the other hand, Prof. Dr. Burak Saltoğlu, Professor of Economics at Boğaziçi University, pointed out that the world economy is facing a serious problem of distribution of wealth. Rich are becoming richer and the middle and lower classes are becoming poorer. He also stated; “The world economy is struggling against issues such as the risk of European Union falling apart, Brexit, the possibility of China facing a recession again, potential unemployment caused by digitalization and the crisis that Argentina and Turkey are experiencing. So the main question we will be asking today is, “What if the world economy fails to grow?”.”.
“We are optimistic about the future even when we are the most pessimistic.”
Following the opening speeches of Özertan and Saltoğlu, World Bank Global Expectations Group Director Ayhan Köse made his presentation titled “The Future of Economic Growth”. While discussing how economic growth will proceed, Köse touched on three important variables about how long-term growth expectations evolve, if these expectations reflect the reality and what kind of expectations occurred for the next 10 years, and he mentioned that expectations for economic growth have fallen over time. Köse, who said, “We are becoming more and more pessimistic about the future.”ö also indicated that the growth expectation for the world economy, which was 3.5% in 2000, dropped to 2.5% in 2018.
Ayhan Köse said; people are more likely to expect a future growth rate higher than the potential. He stated that, despite these expectations, potential growth will slow down according to World Bank data. Köse concluded the presentation saying, “Although expectations for long-term economic growth have fallen, people are still optimistic about the future. Optimism is a part of human nature and a necessary feature. We must continue to be optimistic but we should also have information about our optimism.”.
What about end of 2019 inflation?
With his presentation titled "Economic Outlook", in which Turkey's economic problems and future scenarios were discussed, QNB Finansbank Chief Economist Erkin Işık stressed that a serious slowdown was experienced, noting that in the last quarter of 2018 investment and domestic consumption have shrunk. Although some recovery has been observed as of the first quarter of 2019, it is important to look at the source of this recovery and it is mostly provided by the credit growth with public resources, Işık said. He further mentioned the dynamics of employment sector; “Turkey's most important problem is the very slow trend of young population labor force participation. We are facing a historical record with 14% unemployment rate and we need to create 700 thousand jobs next year to keep this rate constant.”. He stated that inflation risks and frailties due to foreign resources still continued and they expected an inflation rate of 17.6% at the end of the year.
"Turkey must position itself well in the trade war between China and the US."
In his presentation titled “China's Economic Situation in the Shadow of Trade Wars and Expectations of Crisis”, Xi’an Jiaotong-Liverpool University Lecturer, Assoc. Prof. Ahmet Göncü, expressed that trade war between China and the United States will continue and Turkey needs to identify its position well in this matter. He added that trade wars are likely to move to military dimensions.
Professor at the London School of Economics and Political Science, Prof. Dr. Holger Breinlich discussed the possible economic consequences of Brexit for the UK and other countries. Breinlich stated that even if Brexit is not realized yet, the economic effects started to be felt. He explained that since the second quarter of 2016, gross domestic product has fallen by 2% and the inflation rate has risen to 2% in intermittent periods; “There is no change in trade constraints yet but uncertainty about the future is already affecting the UK economy.”. Holger Breinlich emphasized that in the case of Brexit, scenarios facing the UK economy will change according to the trade negotiations to be accepted. He said the gross domestic product could fall by 10% in long term. Breinlich added that Brexit will affect other countries as well. Especially countries that has extensive trade with England, such as Ireland, will be affected more compared to the countries that has low trade volumes with England, such as Turkey.
Washington-based Council on Foreign Relations senior fellow of the economists Brad Setser who attended the summit with his presentation titled “What is Expected in Emerging Economies Market in 2019?” said that the solution to the current global crisis depends on drawing lessons from the failures in history, and Turkey has overcome various economic-financial crises in the past and stated that the most important factor in these processes is the country’s trust in its national currency.
Structural reform in the economy should start from human resources.
In the panel, ''Economics of Sectors: What Do You Need for Better Growth Figures?'' directed by journalist Cüneyt Başaran, opinions were expressed on how Turkey will keep the economy intact, while its global trading environment is shrinking.
Filiz Akdede, HP Turkey General Manager, stated that today a global recession is felt in almost every area of the economy but this recession affects sectors such as technology or services relatively less.
Akdede pointed out that this negative economic picture does not affect technology very much because every sector has to invest in technology. She drew attention to Turkey’s need to be a part of the rapid change that comes with technology.
Stating that Turkey is already a major automotive exporter to overseas markets, Akdede noted that over the next 5 years, use of electric vehicles will increase in the countries we export vehicles, so from now on the classic car production will not be an advantage for Turkey anymore.
Akdede drew attention to the necessity of structural reforms in terms of investment and training in human resources in certain areas at developing countries such as Turkey. “14 thousand start ups are established each year in developing countries. Large-scale conglomerates are now being replaced by these individual initiatives. This is also democratization. We have great opportunities for accessing information and presenting our products in the market.”
Priority of investment in human capital in agriculture
Speaking at the same panel, Professor at Boğaziçi University Department of Economics, Prof. Dr. Gökhan Özertan emphasized that, in Turkey, lack of long-term policies and planning, being satisfied with short-term solutions constitutes an obstacle against planned growth.
Giving examples from the agricultural sector within the framework of structural reforms concept, Özertan stated; “In agriculture, Turkey is one of the largest among the EU countries, but our productivity is very low. The contribution of agriculture to GNP is 6%. We need significant structural changes in agriculture, particularly investing in human capital. Old population working in the sector, level of education of workers in the agricultural sector and dependence on foreign inputs are the main structural problems.”.
At the Economic Summit, which continued throughout the day, Boğaziçi University Corporate Governance Center President Prof. Dr. Vedat Akgiray, said that inequality in the distribution of wealth is gradually increasing today. Akgiray shared, the global debt of $160 trillion, in 2008, increased to $270 trillion, adding that it is an unpaid debt. Referring to how Turkey will be affected in the case of a global crisis, Prof. Dr. Akgiray said that Turkey only has credit-linked investments and has an economic growth model based both on the country itself and its companies. Akgiray stated, “Confidence on financial management of the states have deteriorated. In case of a new global crisis, people will show a stronger reaction than they did in 2008, because in finance information and confidence is more important than money.”.