Interesting comments from Turkey
I believe these are universal idea not just as pertains to turkey
morganstanley.com
When output is below its potential, inflation tends to fall even if growth is vigorous. In our view, not the rate of economic growth, but the amount of economic slack is critical to the pace of domestic price changes. On our estimates, Turkey’s output gap — the difference between the current level of GDP and the level that would prevail when resources in the product and labour markets are fully utilised — shows ample slack in the economy. The output recovery process hitherto helped to recoup less than 50% of the cumulative output gap created by the 2001 crisis (see Mind the Gap, September 29, 2003). We also argue that the amount of effective slack is probably greater than most analysts think and that the above-trend growth performance is a result of spare capacity and surging productivity.
Inflation is ultimately a labour-market issue, and the data point to a jobless growth. Manufacturing employment contracted by 8.5% and economy-wide employment losses amounted to 422,000 in the first three quarters of last year (see Help (Un)wanted, December 10, 2003). The lack of demand for new workers holds down real wage growth, and consequently, disposable income that provides the basis for private consumption shows no sign of threatening growth. Although the political decision to increase the net minimum wage by 34% creates upward pressure, the high unemployment rate will keep the average wage subdued even after a real decline of 25% in the last two years. Thus, a controlled wage growth, coupled with productivity gains, should keep unit labour costs at a competitive level and inflationary pressures at bay. |
