EconoMonitor

The Kapali Carsi

Coal for votes – or maybe even lives? (and other Turkey data tales)

This week (June 8-13) is/was Turkey’s quarterly data intensive week. In addition to first quarter National Income Accounts, we had April Industrial Production and Balance of Payments- as well as a bunch of second-tier data. In my latest Hurriyet Daily News (HDN) column, I summarized this data and highlighted a particular observation about industrial production. You can read the whole thing at the HDN website. As usual, I could not fit all I wanted to say to the confines of 3,000 characters, and so here’s my chance to share the rest:

In the column, I discussed the rebalancing from domestic to external demand as the main source of growth. However, thanks to one of the second-tier data of the week, trade volume and price indices, we now this rebalancing is cylical, not structural- in the sense that consumers are not substituting away from imports to domestically-produced goods. You can see that by plotting manufacturing industrial production with the manufacturing export volume index.

According to econ. consultancy Capital Economics, “If some form of substitution were underway, we might expect growth in manufacturing output to race ahead of growth in exports of manufactured goods, reflecting the fact that local firms would be facing strengthening demand from domestic consumers. However, growth in manufacturing output has risen more or less in line with growth in manufactured goods exports.” Good thinking from them… Not definite evidence, but makes one wary on the sustainability of the rebalancing nevertheless…

Another of the second-tier data was Monday’s May automotive sector data. You can see the different paths of production and consumption easily. While production rose annually, sales plunged. Of course, the exchange rate is not as advantageous as last year, which would make a big difference for sales of imported cars, but still…

Could this growth turnout reduce the pressure on the Central Bank to cut rates? I never spelled it out explicitly in this column, but as I have mentioned in previous columns, Prime Minister Recep Tayyip Erdogan will continue to ask for lower rates despite the robust growth data because the consumer will matter much more than the producer for his chances in the August presidential elections…

BTW, in the latest of their monthly note on the economy, Istanbul think-tank Betam argued, based on April import data, that both private and consumption are picking up in the second quarter. They used the trade data, but volume data paint a different picture. Besides, as they note as well, other leading indicators are showing a more negative picture: For example, consumer confidence fell in May. Finally, I am not sure that even if there a moderate pick-up, it would be enough to satisfy Erdogan…

As for the first-tier data,  I only mentioned that the annual current account deficit continued to shrink when discussing the Balance of Payments data in the column. As for the financing, financing improved considerably, especially since the uncertainty surrounding the local elections was over, but financing is still low compared to last year. In fact, there is a decrease in weekly flows to bonds and equities, so the post-election euphoria may be dying down.

That’s all folks…

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