Economy ReportsFinance & Economy

Report: Brief Look at Turkish Economy – August 2012

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We believe the data below would be useful to provide a brief opinion for those who would like to have a quick look at what has been happening in the Turkish economy, recently.

Further details can be obtained from related sources.

ECONOMIC OVERVIEW

Despite the slowdown in the global economic activity the rise in Turkey’s exports and continuation of re-balancing in the demand composition support the expectations that the improvement in the current account deficit would continue.

Besides, in addition to this improvement in the current account deficit, inflation remained also below expectations thanks to the oil prices which are currently below the projections made in the beginning of the year and CBRT’s cautious monetary policy.

CBRT revised its year-end inflation forecast down from 6.5% to %6.2 in the 3rd inflation report of this year. The report also included the new regulations on the FX and gold reserves that might be held to maintain TRY reserve requirements.

In sum, it was underlined that the rebalancing process in the economy became more evident and the cautious and flexible stance in the monetary policy would be kept.

GDP GROWTH

It was reported that the upward trend in GDP figüre continued in the first quarter of 2012 and Turkey managed to accomplish an increase of 3.2 percent in said period – as compared to last year.

This figure was previously forecasted to realize as 2.8 percent.

It was reported that energy sectorhad enjoyed the biggest expansion while mining suffered contraction.

INFLATION

In the 3rd Inflation Report published on July 26th, CBRT reiterated its view that the economic activity will return to its moderate growth path after the weak outlook recorded in the first quarter.

CBRT noted that the private consumption expenditures enlivened in the second quarter and added that the orders for the third quarter pointed out a favorable outlook for domestic demand. CBRT revised down its oil and food price forecasts for 2012 and lowered its inflation forecast of 2012 by 30 basis points to 6.2% with a confidence interval of 5.3%-7.1%.

CBRT expects the inflation to stabilize around 5% in the medium-term.

INDUSTRIAL PRODUCTION

In August, industrial production was realized below expectations.
According to the data announced by Turkstat, May industrial production index increased by 5.9% compared to the same month of previous year, surpassing the expectations.

Seasonal and calendar adjusted index also rose by 1.1% compared to the previous month.
The higher than expected increase in industrial production stemmed from the relatively strong performance in the manufacture of capital goods, non-durable consumer goods and intermediate goods.

Thus, the course of industrial production was in accordance with the moderate growth anticipations for the second quarter of 2012. On the other hand, weak course of global economic activity would continue to be a downside risk on the growth prospects of Turkish economy in the second half of the year.
Capacity utilization rate (CUR) decreased by 0,6 points compared to the same month of previous year and realized as 74.8% in July. Analysis of groups revealed the decline in the capacity utilization in capital goods and durable consumer goods.

EMPLOYMENT

After having followed a flat trend in the beginning of the year due to the weak economic activity, employment figures showed some improvement in recent months mainly due to the rise in industrial sector employment.

According to Household Labor Force Survey results announced by Turkstat, unemployment rate declined by 0.9 points to 9.0% in April compared to the same month of previous year.

On the other hand, seasonally adjusted unemployment rate decreased by 0.1 point compared to the previous month. It realized as 9% in April.

FOREIGN TRADE & DEFICIT

Analysis of the export destinations in the first half of the year revealed that Germany ranked first with a 9% share in total exports. However, the share of Euro Area countries followed a downward trend due to the weak economic performance in these countries while the share of Middle Eastern countries increased. Indeed, Iran became the second biggest exports market during this period with a share of 7.9%.

In this development, the surge in gold exports was the main factor. In fact, gold exports towards Iran during the first half of 2012 reached $4,4 billion (in the same period, total exports to this country were $5,9 billion).

The ongoing recovery in foreign trade deficit continued in June. In this period, exports increased by 16,9 % to $13.3 billion compared to the same period of previous year, while imports shrank by 5.4% to $20,4 billion.

Thus, imports coverage ratio increased by 12.4 points to 64.9% compared to the same period of previous year.

CURRENT ACCOUNT DEFICIT

In the first 5 months of the year, current account deficit declined by 27% to $27 billion compared to the same period of previous year.  As of May, 12-month cumulative  current account deficit realized as $67 billion.  Moderate slowdown in domestic demand limited the growth rate of imports.

Declining oil prices due to the global economic conjuncture also added to the decrease in the energy bill of May.

On the other hand, despite the problems in the Euro Area, the increase in exports was kept  partly with the help of moving towards alternative markets. Hence, rebalancing between domestic and external demand continued also in May.

Current account deficit continued to narrow.The share of Euro Area countries in exports followed a downward trend. Foreign trade deficit continued to narrow down.

Improvement in the current account deficit is expected to continue.  In May, $1.3 billion of FDI inflows were recorded.

BALANCE OF PAYMENTS

Analyzing the financing structure of the current account deficit in May, $1.3 billion of FDI inflows were recorded while portfolio investments were only $376 million. During this period, there was outflow in equity markets while non-residents’ interest in debt securities  continued thanks  to the demand for  securities issued by banks.

Furthermore, banks and non-bank sectors continued to borrow from abroad in May.

After recording significant amount of inflows until recently, net errors and omissions item registered an outflow of $1,383 million in May  following the $990 million of outflow recorded in April.

In the last couple of months, it was observed that the share of long-term inflows in the financing of the current account deficit  increased whereas short-term  inflows followed a flat course due to the slowdown in portfolio investments and short-term borrowings of banks. In the following months, in parallel to the slowdown in domestic demand, the improvement in the current account deficit is expected to continue.

BUDGET

Central budget posted a deficit in the first half of the year. In June, budget expenditures rose rapidly.

In the first half of the year, budget expenditures, which followed a compatible path with year-end targets, realized as TL 168.9 billion by increasing 17.9% compared to the same period of previous year. In June, budget expenditures accelerated due to current transfers and compensation of employees.

Domestic demand, which followed a moderate course in the first half of the year, had an adverse impact on budget revenues. In fact, tax revenues in the first half of the year increased  by  only 6.9% compared to the same period of previous year.

Other revenues which increased rapidly in the same period, however, had a positive effect on the budget balance.

TAX REVENUES

Tax revenues in the first half of the year increased by only 6.9% compared to the same period of previous year.

CENTRAL BANK POLICIES

CBRT revised its year-end inflation forecast down from 6.5% to %6.2 in the 3rd inflation report of this year. The report also included the new regulations on the FX and gold reserves that might be held to maintain TRY reserve requirements.

In sum, it was underlined that the rebalancing process in the economy became more evident and the cautious and flexible stance in the monetary policy would be kept.

BANKING SECTOR

According to BRSA’s Weekly Bulletin, as of July 20th 2012, total deposit volume rose by 4.1% to TL761 billion compared to the year-end. In this period, TL deposit volume registered a limited increase of 2.5%, while FX deposits in USD terms expanded by 12.9%.

As of July 20th 2012, total credit volume increased by 7% compared to the year-end and reached TL742 billion. In the same period, TL loans increased by 10.2% while

FX loans in USD terms rose by 3.3%.  When examined by type of banks, the downward trend in the credit volume growth was noteworthy, especially in public banks.

As of July 20th2012;

  • annual increase in total credit volume of private and foreign banks declined to 18.1% and that of public banks to 9.6%. This confirmed that the impacts of the  slowdown in  private  consumption and investment expenditures on credit volume continued.
  • consumer loans expanded by 6.7% compared to the year-end.
  • the sum of personal finance loans and other consumer loans increased by 7.8% while the increase in housing and vehicle loans realized as 5.7% and 2.6%, respectively.
  • banking sector securities portfolio declined by 1.9% to TL280 billion compared to the year end.
  • securities portfolio held in custody accounts increased by 16.7% to TL191 billion compared to the year-end. In this period, residents’ portfolio expanded by 10% while non-residents’ portfolio increased by 26.1%.

Other findings;

  • net FX position of the banking sector was realized as(+) $711 million. Banks’ on-balance sheet FX position was (-) $29,686 million while off-balance sheet FX position was (+) $30,398 million.
  • Net FX position of the banking sector was (+) $711 million.
  • Deposit volume increased by 4.1% compared to the year-end.
  • Credit volume increased by 7% compared to the yearend.
  • Consumer loans increased by 6.7% compared to year-end.

EXPECTATIONS

The favorable current account deficit figures thanks to the faster than expected rebalancing between domestic and external demand and the recent convergence of inflation to year-end forecasts increased the positive expectations about the Turkish economy in the forthcoming period.
On the other hand, the weak global economic outlook constitutes a risk factor for Turkey as well as all other countries and brought forward the expectations that the major central banks might further ease the monetary policies.

In this context, against these possible repercussions of the global risks to Turkish economy, we expect that the CBRT will keep the flexibility in its monetary policy stance and for a possible easing in monetary policy will wait for the last quarter of the year when the downward trend in inflation is expected to become more evident.

CBRT expects the inflation to stabilize around 5% in the medium-term.

05.09.2012

Compiled from different sources (TUİK, Isbank, Dunya)
Editor

 

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