Page 48 - bne_Magazine_February_2019

48 I Outlooks 2019 bne February 2019
accelerated, coming in at a record month- ly high of $2.77bn. Turkey's trade deficit shrank by 93.8% to $456mn in October, to hit its lowest monthly level since
2001, official data confirming prelimi- nary figures showed on November 30.
“Rebalancing by anorexia”
Atilla Yesilada of Istanbul Analytics wrote of “rebalancing by anorexia”, adding: “Core deficit shrinks at an incredible pace. This may be good news for lira, but augurs very poorly for the consumer, [ruling party] AKP in local elections [scheduled for March 2019].”
Turkey, hooked on foreign-currency debt, is usually talked of as endur-
ing one of the worst current account deficits in the world, with its economic health dangerously reliant on hot inflows of foreign external financing to enable growth. Over the long term, the political and economic outlook
in the country has not been secure enough to attract sufficient longer-term stable foreign investment capital.
Fitch Ratings expects Turkey's current account deficit to narrow significantly, to $12bn in 2019 from around $33bn in 2018 and $47bn in 2017, as the slow- ing economic growth and a materi-
ally weaker lira suppress imports and boost exports. However, the country's financing requirement will remain large as a proportion of liquid foreign assets due to maturing external debt.
Turkey is expecting a 2018 budget deficit of TRY72.1bn, or 1.9% of GDP, according
Home Sales in Turkey
to Treasury and Finance Minister Berat Albayrak, Erdogan’s son in-law. Albayrak added during a mid-December speech in Ankara that the 2019 budget would sup- port ongoing economic rebalancing and that Turkey would continue with uncom- promising fiscal and budget discipline.
It was comments from Erdogan six weeks prior to the June parliamentary and pres- idential elections that once he became executive president he would tighten his grip on the economy and assume a great- er role in setting monetary policy that played a big part in sending the lira into
a nosedive. As the currency crisis went from bad to worse, the president, who pushes the curious view that high interest rates help to drive inflation, backed off and in mid-September the rate-setters brought in a 625 basis point hike, help- ing to pull the lira out of its tailspin.
However, as executive president Erdogan now single-handedly appoints the central bank governor and all the monetary policy committee members, there is still tangible market anxiety that he may once again dabble in mon-
etary affairs he should steer clear of.
TRY seen hitting 4.70 by May According to Renaissance Capital,
in 2019 if annual inflation hovers around 25%, the TRY might recover to 4.70/$ by May 2019 (on January 1 it was trading at 5.27 levels compared to the all-time worst 7.24 recorded as the currency crisis hit its trough five months ago). But at a better infla- tion rate of 22%, the currency may
strengthen to 4.55/$, it added.
ABN AMRO has predicted that Turk- ish inflation will stay around 21% until mid-2019, before coming down swiftly to an estimated 12% in December.
The negative impact of the lira deprecia- tion on the Turkish economy will last for 6-7 months until the spread between the producer and consumer price inflation figures closes, Japan Credit Rating (JCR) Eurasia Rating head Orhan Okmen said on December 14 in a written statement.
Turkey’s retail sale numbers in Octo- ber were the worst on record. Turkey's calendar-adjusted retail sales volume index declined by 7.5% y/y in October, marking the biggest annual contraction since the data set was first compiled
in 2010, national statistics office TUIK reported on December 18. The previ- ous contraction, of 3.4% in September, was the first seen since February 2017 and it was also recorded as the most extensive until the October data arrived.
BoP sudden stop and a lira credit crunch “Turkey's credit crunch – which began with the BoP [balance of payments] sudden stop on Aug. 13 – has been morphing from a complete shutdown
in FX-denominated lending to a credit crunch now in TRY-denominated
new lending, with contraction in TRY-denominated lending worse in Q4 than Q3,” Robin Brooks of the International Institute of Finance (IIF) noted on December 17 in a tweet.
On November 13, Brooks had observed: “Rollover of medium- and long-term external debt in Turkey's financial system fell to 43% in Q3, down from 103% in Q2 and 88% in Q1. This was widely expected and ‘isn't news.’ In fact, it's just a lagging reflection of the credit crunch playing out since early August. The credit crunch in Turkey has been unlike any other, in that the BoP sud- den stop in August caused credit flow to turn negative, after a large positive credit impulse in 2017. We estimate the negative credit impulse to be around -3% of GDP, bigger than in 2008/9.”
Real private consumption growth declined to 1.1% y/y in Q3 from
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