I made my mark on Turkish economic history last Monday as the Turkey economist most quickly proven wrong.

Less than a few hours after last Monday’s Hürriyet Daily News, in which I boldly claimed second quarter year-on-year growth could not be higher than 6.5 percent, hit the stands, growth turned out to be a whopping 8.8 percent. To add insult to injury, the July current account deficit came in at $5.3 billion, compared to my forecast of $5.5 billion.

Interestingly enough, with most market economists performing on par with me, the most accurate growth forecast came from Economy Minister Zafer Çağlayan, who was expecting 8 percent yearly growth. It seems connections are more important than econometrics for an accurate forecast.

Very strong domestic demand, especially investment, was responsible for my forecast error in growth. With the current account, the culprit was – I am ashamed to say – tourism: Average expenditure per tourist was higher than usual in July, although I barely noticed any change in Marmaris.

My sole consolation is that the only other unfortunate soul who performed as poorly as I was Turkish Central Bank Gov. Erdem Başçı, who was expecting flat seasonality and working day-adjusted growth as well as a deficit of around $5 billion.

Since the Central Bank justified its surprise rate cut last month with the impending slowdown, the question that naturally follows is whether the Bank made the right move. Despite the robust second-quarter turnout, growth is slowing down. It is just that the moderation was smaller than expected in the second quarter.

Besides, Turkish investment is extremely volatile and difficult to forecast because it is a perfect example of what Keynes called “animal spirits.” Therefore, I wouldn’t be surprised if it declined sharply later in the year, as global conditions and a weak lira’s effect on balance sheets begin to take their toll on investment decisions.

In fact, more recent indicators are pointing to a more pronounced slowdown. For example, consumer credit growth has fallen to 10 percent in an annualized four-week moving average basis, which is the Central Bank’s preferred measure. It is now nearly half of the 2006-2010 average that the Bank is taking as a reference point.

Similarly, international trade taxes, which were released as part of the budget last week, hint that imports could have significantly declined in August. It is true that industrial production was robust in July, but I try not to read too much into Turkish data around Ramadan.

An equally intriguing question is whether the recent fears of recession were overblown. If you were to define recession as two consecutive quarters of negative growth, the robust second quarter turnout has made it more likely that Turkey ends the year in one: There is a good chance that real GDP will decline this quarter. But even with a “technical recession,” 2011 growth would be above 6 percent because of the strong performance in the first half of the year.

Just like the Indian Summer that is affecting most of Turkey, the second quarter growth figures have created a false sense of overheating that is likely to lead to cold shivers later on.

*Emre Deliveli is a freelance consultant and contributor to Roubini Global Economics. Follow his blog, the Kapalı Çarşı, at www.economonitor.com/emredeliveli/.

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