Reports: Economic Indicators of Turkey, October 2011

We believe the data down below would be convenient to provide an opinion to anyone who would like to have a swift look at what has been happening in the Turkish economy, recently.

Our preference has been not to go into details (which can certainly be acquired at below links) to make it least boring for the visitor.

The interested parties can go into further depth concerning topics they would be interested in.

As an overall evaluation the Turkish economy is observed to have been moving in the right direction and the moreso when compared to the troubled economies of Europe.

The government can and should be referred to as quite successful, in this regard.

IMPORTANT NOTE: The data on this page has certainly been derived from the most reliable sources such as Central Bank of Turkey or Isbank (Is Bankası) Turkey’s largest private bank. Nevertheless, businessturkeytoday.com would not accept any legal liabilites from third parties due to any damage or loss to be claimed to have been incurred due to the content in this writing, nor would the owner and editor of this site.

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Editor, BUSINESS TURKEY TODAY

 

 

ECONOMIC OUTLINE, OCTOBER 2011
compiled from various sources

 

PROGRAMS

Medium Term Program (MTP) was announced by the government in October. The program covers the 2012–2014  years and it was prepared under the assumption that there will not be a second dip in  global economy although global growth will follow a weakcourse.  The MTP was based on policies  to reduce the current account deficit.

GDP GROWTH

This time, the government has determined a much more realistic approach in the current MTP, as the current account deficit estimations have significantly deviated from the realizations in former MTPs and the MTP has been prepared in the context of sustainable growth and current account deficit.

The administration has set GDP growth target for Turkish economy as 4% in 2012 (above the market expectations). Parallel to the relatively high growth target and weak foreign demand, the improvement in the current account deficit to GDP ratio is anticipated to be gradual. The stated ratio, which is anticipated to realize as 9.4% at the end of 2011, is targeted to decline to 8% at the end of 2012 and to only 7% at the end of 2014.

FISCAL POLICIES

Looking at the MTP it is clear that implementation of tight fiscal policies are to be continued by the administration, in the coming three years.

In this context, the general government budget deficit is anticipated to realize at 1.7% as a percentage of GDP in 2011. The  stated ratio is targeted to  recede to 1.5% in 2012. Considering the strong budget performance in the previous years, these targets seem well achievable. Another point in fiscal policy is the privatization targets. The privatization revenue target of 2011, which was set as TL13.7 billion in previous year’s MTP, is now estimated to  be  realized as only TL4.3 billion. The government targets to achieve a total of TL37.9 billion privatization revenues during 2012-2014.

INDUSTRIAL PRODUCTION

Judging on the figures announced by Turkstat it can be observed that there has been a recent  slowdown in the economic activity and the industrial production was realized below the expectations in August although it increased by 3.8% compared to the same month of previous year (which is below expectations)

Considering the uncertainties in  global markets and slowdown in domestic economy, industrial production is anticipated to follow its moderate growth path in the coming period.

UNEMPLOYMENT RATE

The unemployment rate fell by 1.5 points to 9.1% in July, compared to the same month of previous year. In the same period, seasonal adjusted  unemployment rate declined to  10.1%.

It is expected that the unemployment rate might rise again in the coming period,due to the slowdown in economic activity and the removal of the seasonal factors, which had a diminishing effect during summer months.

Source: Household Labor Force Survey

FOREIGN TRADE DEFICIT

Foreign trade deficit which is one of the major problems of the Turkish economy, increased by 54.6% in September, compared to the same month of previous year to $10.4 billion, the highest monthly level. In this period, exports recorded an increase of 21.1% and reached $10.8 billion while imports rose by 35.5% to $21.2 billion which ended up in declining of import coverage ratio to a quite low level of 50.9%.

This was mainly due to the situation caused by the import of intermediate goods (the main driver of foreign trade deficit) which followed  an upward trend due to the strong growth performance together with the rise in oil prices. The administration is determined however to take necessary measures in the coming period, in line with the measures taken by policy makers to control domestic economic activity. Thus the widening in foreign trade deficit is expected to lose momentum significantly

CURRENT ACCOUNT DEFICIT

Current account deficit  (CAD) was realized as $4 billion in August. With the foreign trade deficit reaching $61.4 billion  during January-August period, current account deficit increased to $54.3 billion by rising almost 100% compared to the same period of the previous year. Looking at the cumulative figures in the last 12 months, it was seen that current account deficit maintained its level around $75 billion.

PORTFOLIO INVESTMENTS

Parallel to the rising risk perception in the global markets short-term capital inflows into the emerging market economies reversed as investors decreased their exposure. As a result of this, in August portfolio investments  registered a net outflow. Sales were effective both in equity and debt securities. In spite of the fact that FDI flows increased  slightly  in August, there was a $37 million net  capital outflow. Furthermore, $400 million capital  outflow  was observed  by  unregistered channels during the  same period, thus net errors and omissions account posted a negative balance. Thus, the current account deficit in August was financed  by the use of CBRT reserves.

BUDGET

Central government budget maintained its  strong  performance in September with primary balance posting a surplus, unlike the same month of the previous year, and budget deficit declining by 73% and being realized as TL1.9 billion. During January-September 2011, central government budget performed a surplus for the first time in 28 years, in terms of  the first 9 months. Budget surplus  was  realized as TL234 million during January-September 2011 and primary surplus reached TL35 billion by rising 95% compared to the same period of the previous year. For the first 9 months of the year, 81% of the year-end target was met in the tax revenues and 70% of the targeted expenditures realized.

TAX REVENUES

In September, tax revenues which increased by 26% compared to the same month of the previous year supported the strong performance in the central budget. This mainly stemmed from the 56% increase in revenues from VAT on imports and 31% increase in revenues from income taxes in September. As  of the first 9 months of the year, 87% of the year-end target of VAT on imports has been reached. Furthermore,  revenues from  corporation tax based  on declaration reached 5 times of its year-end target during the same period.

In October, increases in the taxes in tobacco products and beverages and also the rises in special  consumption taxes regarding mobile phones, vehicles used in transportation and automobiles above 1,600 cc excluding electric cars, are expected to limit the rise in imports while supporting the tight fiscal policy. Although the rise in tax revenues is predicted to decelerate  owing to the  slowdown in the economic activity, no problem is expected achieving the year-end target

CENTRAL BANK POLICIES

CBRT, which has been holding foreign exchange selling auctions since August to limit the depreciation of TL, has intervened in the foreign exchange market by selling FX on 26thOctober for the first time since June 2006. As of October 28th, the gross FX reserves of the CBRT fell from its 2011 peak level of $93 billion, which was reached on July 2011, to $84.4 billion with a $8.6 billion decline. At its October meeting, CBRT kept the policy rate (one-week repo rate) unchanged at 5.75% while overnight lending rate was increased from 9% to 12.5% and  interest rate onborrowing facilities provided for primary dealers via repo transactions  was  raisedfrom 8% to 12%. In addition,  in order to meet the TL liquidity requirement of the Turkish banking  system permanently and at a lower cost, while at the same time bolstering the build-up of the Central Bank’s FX reserves,  CBRT raised the upper limit for FX reserves that may be held to meet TL reserve requirements from 20% to 40% of TL liabilities. In this respect, CBRT’s FX reserves are expected to increase by about $4.7 billion if this additional facility is utilized in full.

BANKING SECTOR

Increase in FX deposits in USD term: Total deposit volume has increased by 12.2% compared to the year-end.  In the same period, while TL deposits rose by 5.2%, FX deposits in TL terms recorded an  increase of 28.1%. Besides, increase in FX deposits in USD terms was realized as 7.7%. Examining latest developments  after the measures taken by CBRT, in line with the  fall in foreign exchange rates, there was a notable rise in FX deposits in USD terms. Increase in deposits volume, which followed a weak course in 2011, is expected to to accelerate due to the rise in interest rates in the forthcoming period. Tax rises are expected to provide more cash flow to the budget.

Credits: As of 21stof October, 2011, total credit volume increased by 25.8% compared to the year-end.  When adjusted for the exchange rate, the increase in credit volumerecedes to 19.8%. In this period, TL credits rose by 21.5% while FX credits in USD terms increased by 15.3%.

Securities portfolio: As of  October 21st, 2011, banking sector securities portfolio increased by 0.6% compared to the year-end. Securities available for sale receded by 27.2%  while securities held to maturity decreased by 55.2%. On the other  hand, securities portfolio subject to repo transactions increased by 103.4%. Increasing trend of securities available for sale and securities held to maturity after the second week of October was noteworthy. As of October 21st, 2011, securities portfolio held in custody accounts rose by 21.7% to TL155.7 billion  with market prices  compared to the year-end. In this period, residents expanded their portfolio by 6.7% while non-residents increased by 53.8%. Although non-residents’ portfolio increased rapidly compared to year-end, in recent weeks it has followed a declining trend. Thus, non residents’ portfolio, reaching TL71.1 billion to its highest level of this year on August 12th, decreased from this level by TL8.7 billion to TL62.4 billion as of October 21st.

Net FX position of the sector: As of October 21st, 2011, net FX position of the banking  sector was realized as (-)$567 million. Banks’ on-balance sheet FX position was (-) $18,033 million while offbalance sheet FX position was (+) $17,466 million

Source: BRSA, 21st October weekly bulletin.

EXPECTATIONS

The news about a  referendum  plan in Greece reinforced the concerns about the global macroeconomic problems. The risk aversion tendency led to capital outflows from emerging market economies and TL was also under pressure in this period. In October, CBRT took a series of measures to limit the excessive depreciation of TL in the context of its primary object “price stability”.  To limit the adverse effects of the increased global  risk perception on domestic markets and to prevent the deterioration in medium term inflation outlook, CBRT would took the necessary measures. Thus, in the forthcoming period

The domestic economic activity would continue to slow down but avoid a hard landing. In line with that, credit growth would be mild.

SOURCE: ISBANK WEB PAGE