Full Report - Subregional Office for East and North-East Asia - escap

MACROECONOMIC PERFORMANCE AND POLICY CHALLENGES AT THE SUBREGIONAL LEVEL CHAPTER 2
have grown by 6.2% for the year as a whole. The
deceleration in growth was mainly due to relatively
lower growth of the agricultural and services sectors.
On the demand side, the investment-to-GDP ratio
has been improving and crossed the 30% mark
in 2012.
In Turkey, there was a sharp slowdown in GDP
growth to 3.2% in 2012 from 8.6% in 2011. There
were weaker global economic conditions, especially
in the crisis-affected euro zone, Turkey’s main
export market; and monetary policy tightening was
imposed to reverse a sharp fall in the value of the
Turkish lira in late 2011 and early 2012, which had
a dampening impact on the growth performance of
the country. All the major sectors of the economy
witnessed much lower growth rates in 2012. Moreover,
gross fixed investment growth slowed sharply in
2012 due to softer domestic demand and the base
effect of higher growth in 2010 and 2011. Civil war
in neighbouring Syria led to an influx of refugees
to Turkey. Moreover, political instability in other
neighbouring countries in the Middle East is also
having adverse impact on the Turkish economy.
High inflation persists
Inflation in many of these countries is supply-driven,
cost-push inflation. While output is determined
by demand, supply-side inefficiencies contribute
to inflation. Overly aggressive monetary policy
responses can also have strong output costs with
limited effects on the underlying causes of inflation,
as the case of India suggests. High budget deficits
in most of these countries also have inflationary
implications. Poor infrastructure and high relative
public service costs are contributing factors.
Exchange rate depreciation affecting a number of
currencies in the subregion also resulted in price rises
of imported commodities, including food and fuel.
The Islamic Republic of Iran and Pakistan have been
experiencing double-digit rates of inflation (see figure
2.11). The persistence of high inflation in Pakistan is
primarily due to entrenched expectations of inflation
remaining high. It seems that the key drivers for
this expectation are continued fiscal borrowings
from the central bank and feared depreciation in
the exchange rate even though the external current
Figure 2.11. Inflation in selected South and South-West Asian economies, 2010-2012
30
25
20
15
10
5
0
Bangladesh
Bhutan
India
Percentage
Iran
(Islamic
Republic of)
Maldives
Nepal
Pakistan
Sri Lanka
Turkey
2010 2011 2012
Source: ESCAP, based on national sources.
Note: Data for 2012 are estimates. Inflation refers to the consumer price index for industrial workers in India and to Colombo for Sri Lanka.
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