Page 47 - bne_Magazine_February_2019

bne February 2019 Outlooks 2019 I 47
reversal] we’ll grow below potential.” Predicting that Turkey’s unemploy- ment rate of 11.1% was set to soar, he added: “What we have seen in previ- ous years was a push to boost demand in order to achieve growth above the economy’s potential. Now we are paying the price of that decision.”
Turkey's double-digit inflation has started falling at a faster rate than expected but footfall is markedly down on busy shopping thoroughfares such as Istanbul's Istiklal Avenue.
Early December brought news that Turkey’s annual consumer price inflation rate had fallen for the first time since March – and sharply. November saw it fall 3.62 percentage points from Octo- ber's 15-year high of 25.24% to 21.62%.
The change was partly ascribed to Turkey’s belated adoption of a bit of orthodox monetary policy by bringing in a major interest rate hike, but Serkan Gonencler of Seker Invest put out a research note detailing how voluntary price discounts and tax cuts loomed large in the latest inflation numbers. “Durable goods played the major role in the inflation moderation,” he said. “Actually, food inflation and energy inflation (both at -0.7%) are broadly
in line with our expectations. That said, it seems that price discounts related
to the temporary tax cuts and all-out war against inflation, and partly due
to the TRY’s strengthening, were somewhat higher than expectations.”
He added: “The moderation in infla- tion is positive, but not yet a cause of relief. All in all, there has been more than a 3.5pp fall in annual CPI inflation, which is without doubt positive and supportive of current market senti- ment. Nevertheless, it should also be kept in mind that this decline is mostly due to seemingly temporary factors, such as tax cuts and voluntary price discounts, which might be reversed in early 2019. As a result, we still advise some caution as to the disinflation trend until we see a sustained decline
in inflation (which might probably take place in 2H19),” Gonencler warned.”
Demonstrating the degree of the economic descent, Turkey’s Purchas- ing Managers’ Index (PMI) for manu- facturing in November slightly rose to 44.7 but remained in contraction territory, below the 50-level, for the eighth straight month since April, IHS Markit said on December 3.
Fear of premature easing
Despite the pain, the central bank appears to have been making the right noises as regards sticking to difficult- to-swallow monetary medicine, but the political pressure for generosity from the Erdogan administration ahead of the local elections in three months’
time could, fear some analysts, prompt premature easing from the central bank.
“The greater-than-expected fall in Turk- ish inflation in November increases the chances that the central bank pushes
ahead with an interest cut in the com- ing months,” Jason Tuvey of Capital Economics said in an early December research note entitled “Fall in infla- tion could bring rate cuts further”, adding: “Against the backdrop of a stronger lira, falling inflation and weak economy activity, further interest rate hikes are now completely off the table. Instead, with political pressure on the central bank to loosen policy likely
to mount, there’s a growing risk that policymakers decide to loosen policy even earlier, and more aggressively, than we currently anticipate. For now, though, we are keeping our forecast for the benchmark one-week repo rate to be lowered from 24.00% at present to 20.00% by the end of next year.”
Industrial growth run ends
A 23-month-long stretch of uninter- rupted calendar-adjusted Turkish industrial production growth stretch- ing back to October 2016 was declared over with the arrival of the September data in November. The recorded 2.7% y/y decline for the month, and the subsequent 5.7% y/y drop posted for October, were taken as more evidence of rough recessionary conditions.
The Turkish Automotive Manufacturers Association (OSD) said on December
15 that vehicle production declined by 21% y/y to 128,875 units in November, while the 11-month cumulative produc- tion decline was 7.5% y/y to 1.43mn units. Turkish automakers had thus far addressed the punishing slump in domes- tic sales via their dependence on the dominance of exports in their sales. How- ever, the recent contraction seen in vehi- cle sales in Europe, Turkish automakers’ main export market, could start to seri- ously weigh on the Turkish auto industry. By mid-November analysts were describ- ing Turkey as in the midst of an ultra- intensive economic rebalancing with the latest trade data showing the country recording a second straight monthly current account surplus. The surplus for September came in at $1.83bn, accord- ing to central bank figures announced on November 12. Not since 2015 had Turkey seen a current account surplus in two consecutive months. The October current account surplus showed the trend had
Turkey's double-digit inflation has started falling at a faster rate than expected but footfall is markedly down on busy shopping thoroughfares such as Istanbul's Istiklal Avenue.
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