Report: Economic Indicators of Turkey (May 2012)
In its Inflation Report published in April, CBRT stated that the economic activity in the first quarter of 2012 displayed a weak performance. However, it was also noted that this weakness in economic activity stemmed from temporary factors and the domestic economic activity is expected to show a “mild” recovery in the second quarter. In 2012, CBRT has been designing its monetary policy stance in order to sustain the price stability and has kept its inflation forecast of 2012 intact at 6.5%. CBRT also stressed that additional monetary tightening might be implemented more frequently in the coming period in order to contain the second round impacts of the temporary factors which put upward pressure on inflation.
According to the data announced by Turkstat, in February, industrial production index increased above expectations by 4.4% compared to the same month of the previous year. Following the lowest annual increase in industrial production in January since November 2009, the higher than expected industrial production indexreading in February was mainly due to the low base effect.
In addition, three-months moving average of seasonal and calendar adjusted industrial production index remained its flat course after its decline in January. Industrial production data indicates that the gradual slowdown in economic activity continued in February.
Real sector confidence index increased by 3.1 points to 116 in April compared to the previous month and reached its highest level since May 2011. However, seasonally adjusted index decreased compared to the previous month. Consumer confidence index kept its upward trend since November 2011, however remained below 100 threshold which indicates pessimistic anticipation of consumers. The increase in the consumer confidence stemmed from the improvements in consumers’ assessments concerning purchasing power in the current and next period, job opportunities of the next period and appropriateness of durable consumer goods’ purchases.
In recent period, unemployment rate continued to decline despite the slowdown in economic activity. According to the Household Labor Force Survey by Turkstat, as of January 2012, unemployment rate declined by 1.7 points to 10.2% compared to the same month of the previous year. Analyzing the seasonally adjusted figures, the improvements in the labor market become more evident.
Seasonally adjusted unemployment rate decreased to 8.9% which is the lowest figure since January 2005, the date the data first time published.
foreign trade deficitForeign trade deficit realized slightly below expectations with $7.3 billion in March, while the first quarter foreign trade deficit decreased by 17.5% to $20.3 billion compared to the same period of the previous year. According to data released by Turkstat, import coverage ratio rose to 64.3% in March while exports increased by 12.2% and imports decreased by 4.8% compared to March 2011.
CURRENT ACCOUNT DEFICIT
In February, current account deficit realized as $4.2 billion, lower than expected. The deficit narrowed by 30% in February compared to the same month of the previous year, while 12-month cumulative deficit realized as $75.3 billion. In addition, the cumulative deficit in the first two months of 2012 declined by 15.9% to $10.1 billion compared to the same period of 2011. Contraction of the foreign trade deficit and 36% expansion in services balance are the main drivers of the improvement in current account deficit.
According to the recent figures released by the Ministry of Finance, central budget deficit posted TL5.5 billion deficit in March. With the contribution of high deficit figure of March, total budget deficit in the first quarter of 2012 increased by 56% compared to the same period of the previous year and realized as TL6.4 billion. Despite the expansion in the budget deficit, primary surplus increased by %11 in the first quarter.
In the first quarter, compared to the same period of previous year, budget revenues rose by 12.6%, whereas the growth rate of total tax revenues was 12.2%. 24.7%increase in income tax revenues had significant contribution to the rise in total tax revenues. As an indicator of domestic demand, increase in VAT on imports was only5.9%. Moreover, growth in domestic VAT and consumption tax revenues in the same period were lower than the average growth of tax revenues and were 9.2% and 4.5%, respectively confirming the gradual slowdown in domestic demand.
CBRT MONETARY & FOREIGN EXCHANGE POLICIES
CBRT, published the second Inflation Report of 2012 on April 26th. CBRT kept its year-end inflation forecast unchanged at 6.5%, while setting the confidence interval as 5.3%-7.7%. In the long term, CBRT forecasts that the inflation would stabilize at 5%. CBRT’s inflation forecasts are based on the assumption that additional monetary tightening would be implemented more frequently and annual credit growth would be around 14% in 2012.
CBRT forecasts that inflation will be at high levels in the short term. But, the second round effects of the rise in energy prices are expected to be limited due to the mild domestic demand conditions. On the other hand, CBRT noted that the deterioration in inflation expectations due to the rapid price increases in the last quarter of 2011 and due to the forecasts that the annual inflation would be realized significantly above the target until the last quarter of this year pose risks on pricing behavior and inflation. In this context, CBRT announced that the tight stance in monetary policy would continue and necessary measures will be taken to lower the inflation to a path consistent with the inflation target.
According to BRSA’s Weekly Bulletin, as of April 20th 2012, TL deposit volume decreased by 0.5% compared to the year-end. On the other hand, FX deposits in USD terms have increased by 11.1% since the beginning of the year.As of April 20th 2012, total credit volume expanded by 2.7% to TL711.8 billion compared to the year-end. During the same period, TL credit volume rose by 4.8%, while FX loans in USD terms increased by 3.8%. However, FX loans in TL termscontracted by 2.5% due to appreciation of TL since the beginning of the year. The deceleration in the growth rate of credit volume parallel to the slowdown in economic activity is evident when the annual change in total credit volume is taken into account.
Net FX position of the banking sector
As of April 20th 2012, net FX position of the banking sector was realized as (+) $4 million. Banks’ on-balance sheet FX position was (-) $28,090 million while offbalance sheet FX position was (+) $28,094 million
Despite the positive steps taken towards the resolution of the problems inGreek economy, the shift of the concerns about the debt crisis in Euro Area towards the larger economies of the region such as Italy and Spain , negatively affect the risk perception in global markets recently. These mentioned worries are expected to be influential on the course of global markets in the coming period. It is expected that the ongoing moderate slowdown in domestic economic activity would continue in line with thedevelopments in the global economy and the deceleration in the yearly growth rate of credit volume would continue.
compiled by editor BTT