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Turkey Monthly Economic Monitor
5 APRIL 2017
MONTHLY ECONOMIC MONITOR TURKEY │ MARCH 2017
2
Global Developments
MANUFACTURING PMI
(50 is the threshold for growth)
Global manufacturing industry is at years’ peak with developed countries leading and the positive
momentum is promising for world trade and GDP growth.
Source: BBVA Research, Bloomberg & Markit
WORLD GDP GROWTH
forecasts based on BBVA-GAIN (%, QoQ)
48
49
50
51
52
53
54
Ma
r-1
5
Ma
y-1
5
Jul-1
5
Sep-1
5
No
v-1
5
Jan-1
6
Ma
r-1
6
Ma
y-1
6
Jul-1
6
Sep-1
6
No
v-1
6
Jan-1
7
Ma
r-1
7
EM Developed World
0,4
0,6
0,8
1,0
1,2
Jun-1
2
De
c-1
2
Jun-1
3
De
c-1
3
Jun-1
4
De
c-1
4
Jun-1
5
De
c-1
5
Jun-1
6
De
c-1
6
Jun-1
7
CI 20% CI 40% CI 60%
Point Estimates Period average
MONTHLY ECONOMIC MONITOR TURKEY │ MARCH 2017
3
Global Financial Markets
Source: BBVA Research & Bloomberg
FED RATE EXPECTATIONS
%
Financial stress remained calm for EM and DM after the «dovish» rate hike from the US.
FINANCIAL STRESS INDEX REGIONAL MAP
Standard deviation ≈ (-1, 1)
1,00
1,25
1,50
1,75
2,00
2,25
2,50
2,75
3,00
2017 2018 2019
OIS Implied Fed Rate As of Fed March Meeting Date
OIS Implied Fed Rate Latest Value
FOMC Exp Mar17
BBVA Research
US
EZ
Latam
Brazil
Chile
Colombia
Mexico
Peru
EMEA
Czech Republic
Hungary
Poland
Russia
Turkey
Asia
China
India
Indonesia
Korea
Malaysia
Se
p-1
6
Oct-
16
Ju
n-1
6
Ju
l-1
6
Au
g-1
6
Ma
r-1
7
Fe
b-1
7
No
v-1
6
De
c-1
6
Ja
n-1
7
High risk Low
MONTHLY ECONOMIC MONITOR TURKEY │ MARCH 2017
4
Exchange Rate: USD/TL
USD/TL: GLOBAL AND LOCAL FACTORS
(% weekly change)
Global factors were mostly supporting for Turkish Lira. Local side was on the wait-and-see mode considering
the upcoming April 16 referendum. Higher than expected inflation created some negative reaction.
Source: Garanti Research, Bloomberg
USD/TL
(Level)
-6,5%
-5,0%
-3,5%
-2,0%
-0,5%
1,0%
2,5%
4,0%
5,5%
7,0%
12
-ene
18
-ene
24
-ene
30
-ene
03
-feb
09
-feb
15
-feb
21
-feb
27
-feb
03
-mar
09
-mar
15
-mar
21
-mar
27
-mar
31
-mar
Global Component % Local Component %
2,79
2,99
3,19
3,39
3,59
3,79
3,99
en
e.1
6
feb.1
6
ma
r.16
ab
r.16
ma
y.1
6
jun.1
6
jul.16
ag
o.1
6
sep.1
6
oct.1
6
no
v.1
6
dic
.16
en
e.1
7
feb.1
7
ma
r.17
ab
r.17
Coup
Attempt Moody's
downgraded
Kurdish
Opposition
Leaders in
Custody Davutoglu
resigned
Trump Victory
Yellen speech
Reina Attack
President
softens
speech
Verbal attack on
rates
GDP
Fed March
hike
MONTHLY ECONOMIC MONITOR TURKEY │ MARCH 2017
5
Flows to Turkish Assets and Interest Rates
YIELD CURVE
(%)
Similar to EMs, Turkish bond market incurred inflows during March. Yield curve shifted upwards in the short-
end to belly on higher than expected inflation and CBRT’s increase of average funding rate.
Source: Garanti Research, Bloomberg
FLOWS TO TURKİSH ASSETS
Level, bn TL
8,0
8,5
9,0
9,5
10,0
10,5
11,0
11,5
3M 6M 1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y
Mar.17 Feb.17 Dec.16 Mart 16
-1
-0,5
0
0,5
1
1,5
feb-1
6
ab
r-1
6
ma
y-1
6
jun-1
6
jul-16
ag
o-1
6
sep-1
6
oct-
16
dic
-16
en
e-1
7
feb-1
7
ma
r-1
7
Bonds Equities Total
MONTHLY ECONOMIC MONITOR TURKEY │ MARCH 2017
Economic Activity: GDP
Economic activity showed a v-shaped recovery as 4Q growth surprised on the upside with 3.5% YoY
(consensus 2%). Rapid increase in private consumption and previous quarters’ upward revisions were the
main drivers.
Source: Garanti Research, Turkstat, Bloomberg
-1%
1%
3%
5%
7%
9%
11%
20
10Q
2
20
10Q
4
20
11Q
2
20
11Q
4
20
12Q
2
20
12Q
4
20
13Q
2
20
13Q
4
20
14Q
2
20
14Q
4
20
15Q
2
20
15Q
4
20
16Q
2
20
16Q
4
Private Consumption Public Consumption Total Investment
4,2%
-1,3%
-5%
-3%
-1%
1%
3%
5%
7%
9%
11%
13%
2010 2011 2012 2013 2014 2015 2016
External Demand Domestic Demand
6
CONTRIBUTION TO GDP GROWTH
Annual
DOMESTIC DEMAND GROWTH COMPOSITION
YoY
MONTHLY ECONOMIC MONITOR TURKEY │ MARCH 2017
7
Economic Activity: GDP
ACTIVITY INDICATORS
3 MA, YoY Change, %
MONTHLY GDP GROWTH & ESTIMATE
YoY Change, %
Our monthly GDP indicator suggests continuum of V-shaped GDP growth recovery in 1Q17, following 4Q16’s
above-expectations growth.
Source: Garanti Research, Turkstat, Bloomberg
Sep: -1.3%
Dec: 3.5%
Jan 4.9% 92% information
Feb 6.1% 42% information
-4%-3%-2%-1%0%1%2%3%4%5%6%7%8%9%
10%11%
Ja
n-1
4
Apr-
14
Ju
l-1
4
Oct-
14
Ja
n-1
5
Ap
r-1
5
Ju
l-1
5
Oct-
15
Ja
n-1
6
Ap
r-1
6
Ju
l-1
6
Oct-
16
Ja
n-1
7
Cie
nto
s
GDP Growth
BBVA-GB GDP Growth (Monthly)
GDP growth nowcast
M ean Jun Jul Aug Sep Oct Nov Dec Jan Feb
Industrial Production 3.6 3.0 0.1 -1.3 -3.1 -0.3 0.4 2.0 3.3
Non-metal Mineral 1.4 0.4 -3.3 -1.5 -3.0 2.3 1.7 -1.0 -4.2
Electricity Production 4.2 6.9 6.4 6.8 3.1 3.3 3.3 5.3 6.4 7.1
Auto Sales 4.2 2.5 -4.6 -13.4 -15.2 3.4 24.1 10.2 6.4 -2.1
Tourist Arriv als 3.1 -36.2 -38.4 -38.8 -36.5 -32.9 -28.3 -22.8 -17.8
Number of Employ ed 3.6 2.7 1.8 1.2 1.3 1.4 1.5 1.3
Number of Unemploy ed 4.7 4.2 8.2 11.6 13.2 14.6 16.1 18.6
Auto Imports 6.8 2.6 -3.5 -9.7 -10.2 9.0 31.7 16.4 11.1 -8.1
Auto Exports 7.2 21.6 24.3 14.7 12.2 -16.5 -10.6 -1.7 33.5 30.2
Financial Conditions 75.4 86.7 91.2 88.4 88.6 92.5 80.1 73.6 59.0 42.0
Credit Growth-13Week 12.5 15.3 15.2 14.7 14.5 14.8 14.0 14.3 14.0 14.6
Retail Sales 4.2 2.1 -0.2 -0.5 -0.8 0.3 -0.5 -1.8 -2.3
Real Sector Conf idence 107.3 104.3 106.3 103.0 107.1 103.8 107.6 103.6 100.5 106.5
MICA Forecast 4.9% 6.1%
GDP YoY 5.3% -1.3% 3.5%
2016 2017
Contraction Slow-down Growth Boom
MONTHLY ECONOMIC MONITOR TURKEY │ MARCH 2017
8
Economic Activity: Sectors
SECTORS IN INDUSTRIAL PRODUCTION (IP)
3MA, calendar adj, YoY
RETAIL SALES & IP
3MA, calendar adj, YoY
Industrial Production (IP) growth accelerated in January backed by certain sectors, however lacking a broad-
based support. At odds with consumption driven GDP growth, retail sales’ weakness prevails, stretching out
the gap between IP.
Source: Garanti Research, Turkstat, CBT, Ministry of Culture and Tourism
-4%
-3%
-1%
1%
2%
4%
5%
7%
Jan-1
5
Ma
r-1
5
Ma
y-1
5
Jul-1
5
Sep-1
5
No
v-1
5
Jan-1
6
Ma
r-1
6
Ma
y-1
6
Jul-1
6
Sep-1
6
No
v-1
6
Jan-1
7
IP Exporting Sectors Domestic Oriented Sectors
-3,0%
-1,5%
0,0%
1,5%
3,0%
4,5%
6,0%
Jan-1
5
Ma
r-1
5
Ma
y-1
5
Jul-1
5
Sep-1
5
No
v-1
5
Jan-1
6
Ma
r-1
6
Ma
y-1
6
Jul-1
6
Sep-1
6
No
v-1
6
Jan-1
7
IP Retail Sales
MONTHLY ECONOMIC MONITOR TURKEY │ MARCH 2017
9
Economic Activity: Employment
UNEMPLOYMENT & LABOR FORCE PART. RATE
SA
EMPLOYMENT GROWTH IN SECTORS
YoY
Despite the recovering growth, labor market figures deteriorated with unemployment rate reaching to 12.7%
(12% SA) in December (up from 10.8% in Dec 2015).
Source: Garanti Research, Turkstat
48%
49%
50%
51%
52%
53%
54%
8,0%
8,5%
9,0%
9,5%
10,0%
10,5%
11,0%
11,5%
12,0%
12,5%
De
c-1
2
Jun-1
3
De
c-1
3
Jun-1
4
De
c-1
4
Jun-1
5
De
c-1
5
Jun-1
6
De
c-1
6
Unemployment Rate LFPR - rhs
-8%
-4%
0%
4%
8%
12%
16%
20
10
20
11
20
12
20
13
20
14
20
15
20
16
Industry Construction Services
MONTHLY ECONOMIC MONITOR TURKEY │ MARCH 2017
10
Economic Activity: Trade
FOREIGN TRADE FIGURES
3MA, YoY Change
FOREIGN TRADE FIGURES
3MA, YoY Change
In the first quarter, foreign trade deficit widened according to the preliminary nominal figures. Exports
remained strong, implying a limited positive contribution from external demand to Q1 GDP growth.
Source: Garanti Research, Turkstat
-24%
-20%
-16%
-12%
-8%
-4%
0%
4%
8%
12%
Aug-1
4
Oct-
14
De
c-1
4
Feb
-15
Apr-
15
Jun-1
5
Aug-1
5
Oct-
15
De
c-1
5
Fe
b-1
6
Apr-
16
Jun-1
6
Aug-1
6
Oct-
16
De
c-1
6
Feb
-17
Nominal Exports Nominal Imports
-65%
-55%
-45%
-35%
-25%
-15%
-5%
5%
15%
25%
35%
Jun-1
4
Aug-1
4
Oct-
14
De
c-1
4
Feb
-15
Apr-
15
Jun-1
5
Aug-1
5
Oct-
15
De
c-1
5
Feb
-16
Apr-
16
Jun-1
6
Aug-1
6
Oct-
16
De
c-1
6
Feb
-17
Iraq Russia EU28
MONTHLY ECONOMIC MONITOR TURKEY │ MARCH 2017
11
Inflation
CPI & CBRT’S CORE INFLATION
YoY
CBRT SURVEY: INFLATION EXPECTATIONS
YoY
Inflation rose further to 11.3% on both food and core items. Inflationary pressures will remain in the short term
as exchange rate pass through and base effects on food will be pushing, in our view.
Source: Garanti Research, Turkstat, CBRT
5,5%
6,0%
6,5%
7,0%
7,5%
8,0%
Ma
r-1
1
Jul-1
1
No
v-1
1
Ma
r-1
2
Jul-1
2
No
v-1
2
Ma
r-1
3
Jul-1
3
No
v-1
3
Ma
r-1
4
Jul-1
4
No
v-1
4
Ma
r-1
5
Jul-1
5
No
v-1
5
Ma
r-1
6
Jul-1
6
No
v-1
6
Ma
r-1
7
12-month ahead 24-month ahead
upper bound of the
inflation target
-4%
-1%
2%
5%
8%
11%
14%
Ma
r-1
3
Jun-1
3
Sep-1
3
De
c-1
3
Ma
r-1
4
Jun-1
4
Sep-1
4
De
c-1
4
Ma
r-1
5
Jun-1
5
Sep-1
5
De
c-1
5
Ma
r-1
6
Jun-1
6
Sep-1
6
De
c-1
6
Ma
r-1
7
Core (I Index) Food Energy CPI
MONTHLY ECONOMIC MONITOR TURKEY │ MARCH 2017
12
Inflation
UNPROCESSED FOOD CPI & FRESH FOOD EXPORTS
TO RUSSIA & IRAQ
YoY
DOMESTIC PPI & USD/TL
YoY
In addition to the base effects, modest recovery in food exports also create another upward risk on food
prices. Domestic PPI keeps climbing with currency depreciation and relatively higher commodity prices.
Source: Garanti Research, Turkstat, CBRT
-20%
-10%
0%
10%
20%
30%
40%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Ma
r-1
0
Sep-1
0
Ma
r-1
1
Sep-1
1
Ma
r-1
2
Sep-1
2
Ma
r-1
3
Sep-1
3
Ma
r-1
4
Sep-1
4
Ma
r-1
5
Sep-1
5
Ma
r-1
6
Sep-1
6
Ma
r-1
7
Domestic PPI USDTRY - rhs
-5%
0%
5%
10%
15%
20%
-80%
-60%
-40%
-20%
0%
20%
40%
Ma
r-1
3
Jun-1
3
Sep-1
3
De
c-1
3
Ma
r-1
4
Jun-1
4
Sep-1
4
De
c-1
4
Ma
r-1
5
Jun-1
5
Sep-1
5
De
c-1
5
Ma
r-1
6
Jun-1
6
Sep-1
6
De
c-1
6
Ma
r-1
7
Fresh Food Exports to Russia & Iraq (3MA)
Unprocessed Food CPI (3MA - rhs)
MONTHLY ECONOMIC MONITOR TURKEY │ MARCH 2017
Monetary Policy
INTEREST RATE CORRIDOR
Levels
CBRT FUNDING COMPOSITION
Levels, bn TL
As inflation continue to rise, the Central Bank (CBRT) increased its average funding rate further to 11.5% by
allocating a higher share from the 11.75% late liquidity window (LLW). Since mid-January, CBRT’s funding
composition remained only through the O/N lending and the LLW.
Source: Garanti Research, Turkstat, CBT, BRSA, Bloomberg
0
20
40
60
80
100
en
e-1
7
feb-1
7
ma
r-1
7
ab
r-1
7
LLW Total ON Lending 1-week repo
3%
5%
6%
8%
9%
11%
12%
14%
15%
Ma
r-1
3
Jul-1
3
No
v-1
3
Ma
r-1
4
Jul-1
4
No
v-1
4
Ma
r-1
5
Jul-1
5
No
v-1
5
Ma
r-1
6
Jul-1
6
No
v-1
6
Ma
r-1
7
Cie
nto
s
ON Lending-Borrowing ON Borrowing
CBRT One-Week Repo CBRT Cost of Funding
CBRT LLW
13
MONTHLY ECONOMIC MONITOR TURKEY │ MARCH 2017
14
Loan Growth and Interest Rates
LOAN GROWTH RATES
13-week annualized
LOAN INTEREST RATES
4-week average
Despite the CBRT’s significant monetary tightening year-to-date, financial conditions remain broadly
accommodative thanks to the efforts of the economy management. Government’s Credit Guarantee Fund
keeps supporting the commercial loan growth rates.
Source: Garanti Research, Turkstat, CBT, BRSA, Bloomberg
7%
9%
10%
12%
13%
15%
16%
18%
Jan-1
4
Apr-
14
Jul-1
4
Oct-
14
Jan-1
5
Apr-
15
Jul-1
5
Oct-
15
Jan-1
6
Apr-
16
Jul-1
6
Oct-
16
Jan-1
7
Auto Loans Housing Loans
Commercial Loans Other Consumer
Deposit Interest Rate
-2%
3%
8%
13%
18%
23%
28%
Ma
y-1
5
Jul-1
5
Sep-1
5
No
v-1
5
Jan-1
6
Ma
r-1
6
Ma
y-1
6
Jul-1
6
Sep-1
6
No
v-1
6
Jan-1
7
Ma
r-1
7
Commercial Loans (FX adjusted) Consumer Loans
MONTHLY ECONOMIC MONITOR TURKEY │ MARCH 2017
15
Fiscal Policy
TAX REVENUES & NON-INTEREST EXPENDITURES
12-month sum, YoY Change
TAX REVENUES COMPOSITION
12-month sum, YoY Change
Fiscal policy remains accommodative as non-interest expenditures has been rising significantly with current
transfers, while tax revenues lost momentum due to the tax-cuts and below-potential domestic demand.
Source: Garanti Research, Turkstat, CBT, BRSA, Bloomberg
-7%
-2%
3%
8%
13%
18%
23%
28%
Feb
-14
Apr-
14
Jun-1
4
Aug-1
4
Oct-
14
De
c-1
4
Feb
-15
Apr-
15
Jun-1
5
Aug-1
5
Oct-
15
De
c-1
5
Feb
-16
Apr-
16
Jun-1
6
Aug-1
6
Oct-
16
De
c-1
6
Feb
-17
VAT Special Consumption Tax VAT on Imports
4%
6%
8%
10%
12%
14%
16%
18%
20%
Fe
b-1
4
Ma
y-1
4
Aug-1
4
No
v-1
4
Feb
-15
Ma
y-1
5
Aug-1
5
No
v-1
5
Feb
-16
Ma
y-1
6
Aug-1
6
No
v-1
6
Feb
-17
Tax revenues Non-Interest Expenditures
MONTHLY ECONOMIC MONITOR TURKEY │ MARCH 2017
16
External Balance: CAB & Financing
CURRENT ACCOUNT BALANCE
12-month sum, USD bn
CURRENT ACCOUNT NET FINANCING
12-month sum, % GDP
Current account deficit was 3.8% of GDP in 2016. We expect a slight deterioration in 2017 mainly due to
higher commodity prices and economic recovery. The financing in the last quarter was mostly through net
FDI and net portfolio flows.
Source: Garanti Research, Turkstat, CBT, BRSA, Bloomberg
-90
-70
-50
-30
-10
10
30
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Jan-1
7
CAD CAD Exc. Energy & Gold
-2%
0%
2%
4%
6%
8%
10%
Jun-0
5
Jun-0
6
Jun-0
7
Jun-0
8
Jun-0
9
Jun-1
0
Jun-1
1
Jun-1
2
Jun-1
3
Jun-1
4
Jun-1
5
Jun-1
6
Net Other Investment Net FDI
Net Portfolio Flows CAD
MONTHLY ECONOMIC MONITOR TURKEY │ MARCH 2017
Turkey Monthly Economic Monitor
5 APRIL 2017
Garanti – BBVA Research
Uğur N. Küçük [email protected]
Seda Güler [email protected]
Asuman Kemiksiz [email protected]
Gizem Önen [email protected]