As a new week begins, in order to give to those, who are already focused on the next year’s circumstances, what they crave for, I decided to write down a brief economic forecast.
First of all, it looks like the high levels in both producer and consumer inflation will remain stable in 2019 despite all those brave statements from Ankara. The only concern we might have about the CPI, which is projected to fall to 17% according to Central Bank’s Survey of Expectations, may be a sudden increase in exchange rates and energy prices. Therefore, we will have to keep a close track of exchange rate levels as well as oil prices. In my daily reports, I have once told you that it was not that difficult to predict inflation. Here’s the easiest prediction method for anyone with enough knowledge of Excel:
When you put monthly inflation numbers released by TurkStat into an Excel table to view them over a 12-month span, you can find out the answer to the “What should the inflation rate come out so it can drop back to single-digit?” question for the upcoming periods.
Also, there’s the fact that even though inflation figures do not turn out exactly the same with the CPI, it would be useful to take a look at Istanbul Chamber of Commerce cost of living index in order to see whether the trend is up or down. Besides, both indexes accrue more or less similar to each other at the year-end.
From this point of view, we could always say that it was not possible for Turkey to see single-digit inflation by the end of 2018. When you put numbers into an Excel table and then enter the numbers we expect in the upcoming months, you can come up with a nearly accurate guess. Actually, a similar method can be applied to many other parameters, allowing us to create a reference point in this vast sea of obscurity.
Not much to say about the unemployment data. Based on previously released NEP (New Economic Program) targets, we have clearly understood that Ankara admits the fact that unemployment rate will not fall that easily. However, it may fall to 9.5% in 2021, which is also included among the NEP targets. Given the fact that a significant part of Turkish employment consists of construction/contracting industry, this recent slowdown in the sector directly affects the unemployment in the most negative way possible. By the way, it can be seen that that informal employment has hit such high levels that it makes it not possible for TurkStat to properly monitor it.
There is an apparent deterioration in budget balance. While, on one hand, Government keeps on spending, on the other hand, tax revenue slowly decreases, which naturally results in government borrowing. However, Government still owes tax refunds valued nearly TRY 170 billion to the business world. Everyone questions whether tax cuts previously granted to some sectors will continue or not as of January 2019.
“Best be cautious of what we say about Current Account Deficit…”
It’s only natural that Current Accounts Deficit keeps on narrowing due to Turkey’s growth slowdown. A sudden increase in oil prices however can change the course of things. As a significant part of Turkish imports consists of intermediate goods and energy, price increases in commodity and energy would directly affect Turkey’s imports. In that case, we could face low GDP growth- increasing current account deficit problem. Besides, Current Account Deficit/GDP ratio indicates that this is only a temporary problem. Current account deficit, which shrinks as absolute number, ratio to GDP is increasing. So, it would be better to speak cautiously instead of pretentiously.
You must have noticed that credit/deposit ratio in Banking and Finance industry keeps on rising. This ration never ceased to go up since 2017 when Turkey has first embraced its “We’ll paddle our own canoe” motto. Banking and Finance are in desperate need of fresh money. However, businesses face great difficulties repaying their loans due to restructuring processes and large number of companies that file for bankruptcy. Banks cannot to offer fresh credits unless they collect debts. On the hand, non-bank financial institutions are reducing their balance sheets. None of this is good sign for 2019 GDP growth rate. It looks like Turkey will have to keep on going under more modest circumstances.