In the forthcoming period, parallel to the fading effects of the global financial crisis, the employment creation capability of economies will be determined by structural features of the labor markets. The long-term unemployment of individuals who had lost their jobs due to the crisis or those who had recently joined the labor force but could not find jobs also poses the risk of permanent unemployment for such people. In this respect, the implementation of structural reforms to improve the labor market will prevent a permanent rise in long term  BIS Review 104/2010  3  unemployment during the global crisis and underpin the increase in the potential growth rate of the economy. 4. Productivity  After sharing my views on the labor market, I would like to move on to total factor productivity, the third factor that influences the potential growth rate. Total factor productivity in an economy arises from the interaction and combination of a number of elements. The leading one is the establishment of macroeconomic stability by alleviating the uncertainties that economic agents are confronted with. The prerequisite of macroeconomic stability is fiscal discipline and price stability. Public balances that have improved thanks to prudent monetary and fiscal policies coupled with the inflationary gains following the deep economic crisis in 2001 are noteworthy steps on the road to establishing macroeconomic stability. Economic welfare only increases along with sustainable growth. Sustainable growth implies price stability.
The global economy has displayed a mild recovery since the second half of 2009. Yet, European economies have recently shown signals of deceleration. Although problems in the credit markets of advanced economies have attenuated, they have not been completely eliminated yet. As a matter of fact, credit developments in the USA and the Euro area suggest no significant increase in credit volume. The unresolved issue of troubled assets in  BIS Review 104/2010  1  the banking sector of advanced economies impedes proper functioning of the credit mechanism. Meanwhile, soaring and persisting high unemployment rates in many countries reduce household expenditures and negatively affect the aggregate demand. Soaring budget deficits and public debt stocks stemming from loose fiscal policies implemented in developed countries are an important risk factor that may adversely affect private demand by increasing long-term interest rates in the years ahead. The risks that I have mentioned above also have the potential to affect the Turkish economy in a negative way. Considering that our largest exports market is the European Union, problems prevailing in European economies pose an important risk for our economy, too. As a matter of fact, external demand indicators have recently indicated a partial slowdown. Global turbulence also has the potential to affect the Turkish economy negatively through the channel of expectations. Problems in the global financial markets are likely to restrain the accessibility of external financing.