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December 21, 2018 www.intellinews.com I Page 12
flow of higher frequency indicators, these
are suggesting a much steeper slowdown — much worse than the 1.5% [2019 GDP growth prediction in the central bank expectations survey] would suggest, perhaps even a negative full year print,” Timothy Ash of Bluebay Asset Management, a devoted lira bull since the beginning of September, said on December
18 in a note to investors, following the retail data release which came on top of the larger- than-expected 5.7% y/y contraction in October industrial production.
“In previous periods of crisis — back in 2008/09, and then 2013/14, 15/16, the economy has bounced back very quickly — a reflection I think of the underlying vibrancy of Turkey, with a young growth population, pro business culture, strong banks and sovereign balance sheet. As many people have argued — this time is likely to be different given the problems in the banking and corporate balance sheets and the much higher weight of indebtedness now hanging over the economy. Banks are thus likely to be slow to re-extend credit, which would suggest an L, or Reverse Tick recovery — Turkey is in for a long haul out of this slowdown,” Ash added.
“The positive here is that the ‘rebalancing’ theme does seem to be working in overdrive
— as reflected in the sharp current account adjustment... Actually even in H1, it would
not surprise me if inflation comes in on the downside of expectations — despite the seasonals, simply because with a deep recession and assuming TRY stability, companies are
likely to simply lack pricing power... The market reaction to the downside surprise to inflation in
November was interesting, in that the FX and bonds sold off — I think as they are worried of premature policy easing by the CBRT [Central Bank of the Republic of Turkey] with an eye on local elections in March 2019. Perversely the market kind of hopes I think that inflation stays sticky in Q1, limiting scope for the [central bank] to cut too early,” Ash also observed.
“Endogenous reflection of an exogenous shock” “The swing in Turkey's current account to surplus is an endogenous reflection of an exogenous shock: a sudden stop in lending, given rise to a big negative credit impulse. As much of this swing is cyclical, it doesn't affect our $/TRY fair value, which is still 5.50,” Brooks said on December 18 in another tweet.
“While the currency crisis has passed, the underlying vulnerabilities that caused this crisis have not fully disappeared. A continued fall
in TRY loans indicates a sharp deleveraging, which will further weigh on investments. This,
in turn, will put more pressure on the asset quality of banks’ balance sheets. With a weaker currency and continued high inflation, the Turkish economy is now heading towards a recession,” Nora Neuteboom of ABN Amro Bank said on December 18 in a Turkey 2019 outlook entitled “Facing contraction”.
Real private consumption growth declined to 1.1% y/y in Q3 from 6.4% y/y in Q2 and 9.1%
in Q1 while private consumption’s share in Turkey’s overall GDP based on current prices also declined. It hit a historically low level of 56% in Q3, moving down from 59% in Q2 and 60% in Q1, according to the latest GDP data.