Increase in Expenses? Is that Bad?

Increase in Expenses - Complete Controller

GDP growth figures were announced by TUIK yesterday. The first-quarter growth rate of 2018 was as high as 7.4%. Such a high growth rate should generate a lot of joy worldwide. However, many economists expressed their concerns after the announcement of this figure.

So Why?

When we look at the sub-components of the 7.4% growth, it is seen that private expenses are the driving force in growth. It is seen that investment expenditures, especially construction investments, stand out in transition.

The part about investment expenditures and construction has already been criticized for a long time. However, this time, the most significant complaints about growth are gathered under two headings. LastPass – Family or Org Password Vault

Is Expenses-Based Growth Undesirable Growth?

Many developed states, especially Japan, have been trying to have a dynamic economy with an increasing propensity to consume for a long time. People living in your country consume more under certain conditions may indicate that welfare has increased relatively in that country. In other words, some countries even have problems because there is no consumption.

Then it is possible to say: If you have an economy that can increase consumption under certain conditions, consumption-based growth is a very desirable growth model, let alone bad.

Production – Consumption Balance

Higher consumption means higher demand. High demand creates the necessary ground for producers to produce more in a country. Suppose the manufacturers have a flexible structure or an environment where they can quickly implement investments that will respond to this demand. In that case, the result will also indicate an increase in production. In other words, you can create a healthy growth environment and generate more income in the country. Download A Free Financial Toolkit

Therefore, if you have a production infrastructure that can respond to increasing consumption, it is good that the consumption is high.

In other words, it is quite insufficient to meet the demand regarding production capacity and quality. The negative trend in inflation and current account deficit figures confirms this finding.

If there had been an increase in production as much as the increase in demand, there should not have been such pressure on prices. In other words, since the demand dimension of inflation would be more limited, the increase in inflation would not be as high as it is today. The current account deficit points to a similar situation. Since domestic production cannot meet the demand, Turkey is forced to import, and the current account deficit is increasing rapidly.

From this point of view, the record increase in the current account deficit and the demand-based pressure in inflation show us that consumption-based growth does not correspond to domestic production. Production cannot respond to the increase in demand.

Unless we establish a production infrastructure that can increase consumption in our favor, high demand, which is an essential opportunity for growth, returns as inflation and current account deficit for us and turns into a threat contrary to expectations.

Source of Consumption

A second issue here is consumption in return for income. So is the increase in consumption parallel to the rise in revenue, or are consumers giving up on their future income? If the source of consumers’ demand for goods and services is the increase in their income, then it would not make sense to criticize today’s growth, which is also based on consumption. However, in Turkey, unfortunately, this condition is not fulfilled. In other words, the increase in demand indicates a debt-based consumption increase. How do we know?

The point that citizens’ credit card and consumer loan debts to banks have reached in the last 15 years indicates that consumption is based on borrowing, not income growth.

From 2002 to February 2017, consumers’ credit and credit card debt to banks increased 64 times, from 6.6 billion to 426 billion. Cubicle to Cloud virtual business

So, Does this Promise Sustainable Growth?

In this period, the interest rates have risen from 10% to over 20% in the last few months. And there is a risk of a further increase due to global developments. It will not be surprising that the consumer becomes weak even while paying his current debts, alone consuming new borrowings.

Distribution of Consumption

Defining the consumption increase of large segments of society, who try to meet their basic needs by borrowing with their low income, as an increase in welfare will not be accepted by today’s standards. In other words, if we go through the refrigerator example, having a refrigerator in today’s technology is not an indicator of an increase in welfare but meeting basic needs. What matters is the fair distribution of the rise in consumption and income.

However, if this is achieved, consumption-based growth will become sustainable.

Consumption-based growth is not bad. On the contrary, it is pretty good if it is evaluated well. Let’s not forget the Western countries and Japan, which have been trying to increase the demand for years.

The issue in Turkey is not that there is a consumption-based growth but that there is no production and income increase to meet this increasing consumption. Other macroeconomic indicators, especially inflation and current account deficit, deteriorate further when the environment is like this.

Let’s Wake Up Soon

The issue is not in the growth structure but in the economy’s structure. CorpNet. Start A New Business Now About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity. Complete Controller. America’s Bookkeeping Experts