The Kapali Carsi

State of the Turkish Economy

My upcoming Hurriyet Daily News (HDN) column will be published at 17.00 EST,  midnight in Turkey, 22.00 GMT & and 09.00 Eniwetok, Kwajalein time. Nope I don’t have thousands of readers from these Marshallian (as part of Marshall Islands) atolls; I actually thought they were Jedi knights:); I only learned of them when my Blackberry started changing my timezone to theirs every time I was connecting to its desktop manager to sync the phone. BTW, this is exactly the little annoyances that has caused RIM lose a lot of loyal customers (see question 8 in CEO Thorsten Heins’ Q&A session).

Anyway, before I digressed, I was about to say that I made some key references to the state of the Turkish economy in my upcoming HDN column. Since I could not elaborate on my arguments there due to space constraints, I would like to summarize how I see the Turkish economy.

First, at 3.2 percent yoy, 1Q growth seems quite good at first night. However, domestic demand was extremely weak, and there was a huge contribution from external demand, as exports surged. This dynamic is definitely not sustainable, especially since part of it reflected the growth in gold exports, which I discussed at the blog (if you speak, or rather read,  Turkish, Radikal’s Ugur Gurses and Fatih Ozatay have written on the topic as well)

Before I go on, another small digression: While you can read the details at Citi’s report, other main features of  the GDP figures are the large increase in government spending & investment (the contribution is small because it makes up roughly 14 percent of  GDP) and the significant drawdown of inventories. As I always say, a  picture is worth more than a thousand words:

But 1Q GDP is really old news. More recent demand indicators are painting a mixed picture. For example, Citi economists note, in the report I linked above, that “the CNBC-e consumption index averaged 0.8%MoM (SA) growth in April and May, compared with average growth of 0.3% in the first quarter”, pointing to mild uptick. Their consumer expectation/sentiment indices paint a similar picture:

Likewise, while April industrial production came it much better than expected (1.8 percent vs 0 percent yoy), it seems one-off factors were mainly behind the high turnout. In this respect, Monday’s May Industrial Production will be important to watch. Similarly, seasonally-adjusted (SA) capacity utilization rate (CUR)  fell to 73 percent in June, the lowest since September 2010, compared with the first quarter average of 76.2 percent. The relation between CUR and growth is definitely not one-to-one, as the picture below illustrates, but this downward move in CUR is still worrying.

The data are also hinting that, as I noted above, exports will probably not be as strong as in the first quarter going forward. For example, while the PMI manufacturing index averaged 51.3 in 2Q, compared with its first quarter average of 50.3, the exports subsector has started to weaken.Real sector confidence  paints an even weaker picture: While it is still above the 100-mark, which points to an expansion, not only the headline index has been weakening steadily in the last few months, “orders” and “exports” fell sharply in June.

Last but definitely not the least, Ankara think-tank TEPAV’s retail confidence index is at its lowest level since June 2010:

It is best to sum up with an anecdote: Tomorrow’s HDN column was supposed to be about my take on the latest Turkish data before I decided to concentrate on policy and government bond rates. My original opening sentence was something like this: “The Turkish economy has gone through quite a few uncertain times in the last decade, but I don’t remember being so uncertain myself on the outlook of the economy” Now, you know why:)

I guess it is best to conclude with Turkey Data Monitor’s demand indicators table, which includes most of the data I discussed in this post, and many more, so you can decide for yourselves:

That’s all folks…

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