GDP growth: booming!
- Q4-2019 GDP figure was released at 6% yoy, higher than in Q3 (0.9%yoy):
- The main driver of this boom was private consumption that grew at 6.8% yoy and that was fueled by a huge expansion of credit to consumers, lower interest rates and a 15% rise in minimum wage.
- Despite a sharp improvement in industrial production and many confidences indexes, private investment growth remained slightly negative (-0.6% yoy) but better than in Q3 (-12.8% yoy).
- Due to the strong increase in imports, trade contributions to GDP growth has been negative.
- GDP growth in Turkey in 2019 stands at 0.8% so better than what we forecasted (0.3%).
- Considering the sharp rebound in Q4 and the strong resulting carry-over for 2020, we revise our GDP growth expectations from 1.8% yoy to 3% for 2020 (below the 5% target of the Government) and from 2.2% to 2.5% for 2021.
- These forecasts imply a moderation of growth looking forward that we expect on the back of lower global growth expectations due to COVID-19, deceleration of domestic credit and low private investment.
Inflation and monetary policy: high inflation but easing
- February inflation figure released at 12.37% yoy, higher than in January (12.15%).
- We think that the speed of the disinflation process estimated by the CBRT might be a bit optimistic. The CBRT forecasts inflation to be:
- between 6.2% and 10.2% in 2020 (with a mid-point of 8.2% at end-2020)
- between 3.0% and 7.8% in 2021 (with a mid-point of 5.4% at end-2021)
- We expect inflation at 11% yoy in 2020 (end-Dec at 8.9%) and at 9.2% yoy in 2021
- The rooms to continue the easing cycle are very limited but the Turkish authorities will probably continue to support growth recovery (except if TKY depreciation goes too extreme) so as an additional 50bp cut in H1 is plausible
Funding pressures may rise again especially in a context where the perception of risk is increasing
- Lower interest rates, credit expansion and rise in minimum wages have boosted domestic demand but also imports while global trade and exports have decelerated
- However, the current account deficit is expected to be low this year (below 1% of GDP)
- But the weakness in portfolios and direct investments continues to persist
- Non resident outflows from equity and fixed income markets accelerated in February
- Turkey’s large external financing needs remains its main source of vulnerability
1. Risks are skewed to the downside
- The economic outlook remains very fragile especially in the global context of weaker than expected global growth and rising geopolitical tensions
- GDP has grew on the back of sharp increase of private consumption fueled mainly by credit expansion which pace is not sustainable
- External finances remain weak and vulnerable to sudden stop to capital inflows
- Large capital outflows would in that case lead to FX depreciation and credit crunch
- Will we see a new boom and a bust soon after? This risk is far from zero