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March 15, 2019 www.intellinews.com I Page 4
banks,” Robin Brooks of the Institute of Interna- tional Finance (IIF) said on March 10 in a tweet.
Real banking credit in Turkey shrank by 7.2% on a quarterly basis in the last three months of 2018. Government officials have been busy ‘persuading’ banks to issue more and cheaper loans. How the public lenders are financing their lending growth has become a worrying question for analysts, but annualised credit growth turn positive in February for the first time since August.
“Our model continues to signal fair value for $/ TRY [Turkish lira] around 5.50, largely because the current account adjustment at this stage is mostly cyclical,” Brooks wrote on March 8.
“Growth wasn’t balanced”
“Turkey was one of the fastest-growing emerging economies in 2017, but its growth wasn’t bal- anced. Excess government spending and rapid credit growth caused imports to surge and the current account deficit to widen. Unsurprisingly, the economy is paying the price for past excess- es,” Ziad Daoud of Bloomberg Economics said in comments on the Q4 GDP data.
Although not reaching 2017 levels, Turkey’s damaged economy has experienced current account deficits — albeit at relatively limited levels — since December while government spending and the public lenders’ loan provision is booming in the build-up to the local polls.
Turkey posted a relatively limited current account deficit of $813mn in January versus a $7bn deficit in January 2018, the central bank said also on March 11. The 12-month cumulative deficit declined further to $21.6bn in the month from $27.8bn in December.
A Bloomberg survey had predicted a deficit of $650mn for January.
Standard & Poor’s forecasts Turkey’s GDP will contract by 0.5% y/y in 2019 amid tight financing conditions and elevated inflation.
On the capital flows front, Liam Carson said
on March 8 in Capital Economics’ Emerging Markets Capital Flows Monitor for February: “The improvement in capital flows in the first two months of 2019 mirrored the good start to the year for EM financial markets. Global investor appetite for riskier assets was supported by a dovish shift by the Fed and easing trade tensions between the US and China.”
“Inflows have started to dry up”
He added: “However, more timely data suggest that inflows have since started to dry up. Daily figures on purchases of stocks and bonds provided by a handful of EMs point to a fall in inflows in early-March. Admittedly, these figures don’t match the official balance of payments figures with a high degree of accuracy — the daily data cover fewer countries and a more limited range of assets. They do, though, offer a sign that the deterioration in risk appetite has led to a pullback from EM bonds and equities.”
Capital Economics sees investor sentiment as likely to deteriorate further this year. It expects that concerns about slower global GDP growth will intensify over the coming quarters, resulting in a further rise in risk aversion and reducing demand for EM assets.
“The Turkish lira was one of the worst performing EM currencies [last] week which, in part at least, seems to reflect investors no longer buying the central bank’s hawkish rhetoric... One possible explanation for this is a rise in risk-off sentiment in recent days. Another is that investors are worried about a fresh deterioration in Turkey-
US relations [with the row over Turkey’s planned purchase of Russia’s S-400 missile defence system coming to the fore],” Tuvey said on March 8 in Emerging Europe Economics weekly.
Start of easing cycle expected for June
The upshot, said Capital Economics, was that it would not read too much into the central bank’s monetary policy statements and it did not see its hawkish tone as precluding policy from being