Report: Economic Indicators of Turkey (July 2012)
On June 20th Moody’s upgraded Turkey’s rating by one notch to Ba1 while keeping the rating outlook positive. As a result, Turkey’s credit rating increased to the level which is only one notch below the investment grade. The rationale behind this decision is reported to be the improvement in external shock-absorption capacity of the Turkish economy and increased resilience of Turkey’s public finances. Moody’s also noted that the credit rating might be upgraded to the investment grade on condition that the improvement in current account deficit continues.
Turkish economy, which has been slowing down since the second half of the previous year, grew by 3.2% on a yearly basis in the first quarter of 2012. Despite the fact that the economic activity displayed its weakest performance in the post crisis period, the first quarter GDP growth still surpassed the market expectations of 2.8%. In the first quarter of 2012, private consumption expenditures followed a flat trend while measures taken by the policy makers‟ in order to balance the domestic and external demand have helped the net exports to make the highest contribution to growth by 4.5 points.
Turkish economy grew above the expectations in the first quarter of 2012
Turkish economy, which has been slowing down since the second half of the previous year, grew by 3.2% on a yearly basis in the first quarter of 2012. Despite the fact that the economic activity displayed its weakest performance in the post crisis period, the first quarter GDP growth still surpassed the market expectations of 2.8%. Calendar adjusted GDP increased by 2.4% in first quarter of 2012 comparedto the same quarter of previous year. Seasonal and calendar adjusted GDP, on the other hand, decreased by 0.4% in the first quarter compared to previous quarter,confirming the weak economic activity.
Services sector contributed to growth by 2 points
Analyzing GDP figures via economic activity approach revealed that the industrial sector contributed to growth by 0.9 point. The services sector, which has the highest share in the domestic economic activity, made 2 points contribution to growth. Agricultural sector contributed to growth by 0.2 point. Construction sector, in which slowdown in economic activity became more evident in the last two quarters, also made 0.2 point contribution.
Private consumption expenditures followed a flat trend in the first quarter
Analyzing GDP figures via expenditures approach pointed out that the slowdown in the economic activity became more evident in first quarter of the 2012. Private expenditures, which were the engine of economic growth during the post crisis period, followed a flat course in first quarter of 2012 while public consumption expenditures contributed to growth by 0.5 point. In this period, investment expenditures also displayed a weak performance. Change in inventories in the firstquarter of 2012 had 2.3 points decreasing impact on growth. Measures taken by the policy makers‟ in order to balance the domestic and external demand have helped the net exports to make the highest contribution to growth by 4.5 points.
Real sector confidence declined in June
Real sector confidence index, which is based on evaluation of the real sector agents about current and future market conditions, fell by 5.7 points compared to previous month to 108.1 in June. The deterioration in real sector confidence reflects the impact of the rise in risk perception in global markets on domestic markets. Adverse evaluations for fixed investment expenditures, volume of output (for next three months) and general business situation made by participants were the main reasonsof the decrease in real sector confidence index.
We expect that the annual growth in 2012 will be around 3.5 – 4%.
Taking into account the leading indicators for the second half of the year, we estimate that the economic activity would keep its mild course during this period and annual growth rate would realize around 3.5 – 4%.According to the Household Labor Force Survey results announced by Turkstat, as of March 2012, unemployment rate declined by 0.9 point to 9.9% compared to the same month of previous year. On the other hand, compared to the previous monthseasonally adjusted unemployment rate was unchanged at 9.1%. In March 2012,non-agriculture unemployment rate declined to 12.1% from 13.4% in March 2011.As of March 2012, the shares of the agricultural, construction, services and industrial sectors in total employment were 23.6%, 5.9%, 50.7% and 19.8%, respectively. While the shares of the service sector and agricultural sector increased by 2.3 points and 1.2 points respectively, the share of the construction sector declined by 0.3 points and share of industry declined by 0.8 points, compared to the same period of 2011. On the other hand, youth unemployment rate declined to 17.4% from 19.3% in March 2011.
Share of EU countries in total exports declined to 36%
Exports to the Middle East and North African countries, mainly to Iran and Iraq, have been following an increasing course while the share of EU countries in total exports has continued to decline. In fact, only 36% of the total exports of Turkey were destined to the EU countries in May. This ratio was around 46% in 2011. Increase in gold exports to Iran was noteworthy. In fact, exports of precious metals increased by 5 times compared to the same month of previous year. Distribution of exports by countries showed that Iran, which has become the first largest export market of Turkey in April, maintained its position with a share of 12.6% in May. The gold exports to this country have been influential in this development.
Improvement in the current account deficit continued
Current account balance continued to recover in April thanks to the narrowingforeign trade deficit in line with the ongoing re-balancing between domestic and external demand. Current account deficit, which realized as $5 billion in April parallel with the market expectations, declined by 28% to $21.2 billion in the first four months of the year. Accordingly, 12-months cumulative current account deficit was reduced to $69.2 billion, the lowest level since May 2011.
Central government budget displayed a favourable outlook in the first five months of the year
According to the figures released by the Ministry of Finance, central budget balance recorded TL4.6 billion surplus in May. Moreover, in the first five months of this yearthe cumulative budget deficit realized at considerably low levels. During the same period, primary surplus increased by 16% to TL23.9 billion and already reached 82% of its year-end target.
Significant rise in other revenues…
In January-May period, compared to the same period of previous year, both budget expenditures and revenues increased by around 15%. During this period, tax revenues rose by 10.9% and non-tax revenues surged by 36.7%. Collections from loans and capital revenues were the main sources of this rapid rise in non-tax revenues.
CBRT kept interest rates unchanged
CBRT decided to keep one-week repo auction interest rate (5.75%), overnight borrowing interest rate (5%) and the overnight.
It was stated that the re-balancing between domestic and external demand continued; and while domestic demand showed a significant slowdown in the first quarter, leading indicators suggested a modest recovery for the second quarter. Besides, it was highlighted that exports continued to grow despite the problems related to global economic activity. In this context, CBRT anticipated that the decline in inflation and improvement in the current account balance will continue in the forthcoming period. However, it was also noted that despite its falling trend, the current inflation level above the target necessitates CBRT to keep its cautious stance and to implement additional monetary tightening in required days.
According to BRSA‟s Weekly Bulletin, as of June 22nd 2012, TL deposit volume increased by 1.3% compared to the year-end, while FX deposits in USD terms expanded by 13.1%.
Credit volume increased by 6.4%
As of June 22nd, 2012, total credit volume increased by 6.4% compared to the yearend and reached TL737.9 billion. In the same period, TL loans increased by 9.2% while FX loans in USD terms rose by 4.8%. FX loans in TL terms, on the other hand, contracted by 0.4% due to the developments in FX rates. Downward trend in annual loan growth continued in June.
As of June 22nd 2012, consumer loans expanded by 5.7% compared to the yearend.
Examining the breakdown of consumer loans, housing loans, personal finance loans, vehicle loans and other consumer loans increased by 4.7%, 3.8%, 1.3% and 15.3%, respectively in the same period.
As of June 22nd, 2012, net FX position of the banking sector was realized as (+) $213 million. Banks‟ on-balance sheet FX position was (-) $32,522 million while off-balance sheet FX position was (+) $32,734 million.
Despite the slowdown in domestic economic activity, Turkish economy grew more than expected in the first quarter of 2012 thanks to the strong export performance. It is anticipated that the soft landing in economic activity wouldbe kept throughout the rest of the year. The continuation of the positive trendin inflation and current account deficit would also improve the expectations about the Turkish economy and thus be determining in the credit rating agencies’ considerations.
On the other hand, Euro Area related risks still stays elevated due to the problems in banking sector of Spain. Besides, the rise in global risk perception due to the concerns about the sustainability of the recovery in US economy and the loss of momentum in growth rates in many developing countries would continue to put pressure on domestic market.
compiled by editor BTT