Turkey’s economic confidence index reaches 18-month high, signals optimism

Turkey’s economic confidence index reaches 18-month high, signals optimism
By bne IntelliNews May 26, 2017

Turkey’s economic confidence index rose for the fourth straight month in May. It was once more driven by improved sentiment among consumers and among businesses in the services, retail and construction sectors. Of the five sub-indices of the country's economic confidence index, only seasonally adjusted real sector confidence posted a monthly decline in May, amounting to -1.4%.

Turkey's confidence indicators remain under political pressure following the April 16 referendum on shifting to an executive presidency in which Turkish President Recep Tayyip Erdogan sealed a narrow victory based on official results. Domestic and regional tensions are also still being generated by the Syrian and domestic Kurdish crises.

Nevertheless, the economic confidence index moved up by 1.1% m/m in May to 100.5, the highest level recorded since November 2015 when the ruling AKP regained its parliamentary majority in a snap poll, data from national statistics office TUIK showed on May 26.

What's more the indicator for economic confidence has now passed the 100-mark which separates optimism from pessimism. The last optimism recorded in Turkey's economic confidence index was also recorded in November 2015.

The consumer confidence index improved by 5.1% m/m in Aprilafter the 3.2% m/m gain registered in March. Business sentiment also hit the recovery path during the three consecutive months from February, gaining to a two-year high of 111.2 in April.

The OECD is forecasting that private final consumption growth in Turkey will decline to 3% in 2017 from 4.1% in 2016.

Turkey’s business confidence index deteriorated in May, mainly due to a 15% m/m decline registered in the sub-index that measures export orders for the next three months. The government introduced a set of measures to stimulate the domestic market during the first quarter in the build-up to the referendum. However, the deteriorating exports outlook harmed real sector confidence in May.

The seasonally-adjusted confidence index for the construction sector rose by 0.8% m/m in May, following a 0.2% decline in April. Despite the slight recovery in May, the index value for construction confidence is still well below the 100-mark.

Home sales in Turkey grew 7% y/y to 440,226 units in January-April.

Retail confidence in May also improved on a monthly basis for the fourth month in a row. The seasonally-adjusted retail confidence index rose 1.1% m/m, slowing from the strong 4.1% m/m gain registered a month ago.

Turkish retailers have been recorded as optimistic in the last two months following a run of pessimism running from September 2016 to March.

The turnover index for shopping malls in Turkey rose 5.5% y/y in Q1 despite a 2.8% y/y decline in the index measuring the number of visits. Meanwhile, Turkey's calendar-adjusted retail sales volume index fell by 0.4% y/y in March after declining 4.4% in February.

The service industry’s seasonally-adjusted confidence index also rose by 2.1% m/m in May, following a 3% m/m rise in April. The industry switched to optimism in May for the first time since July 2016. 

The tense political atmosphere stemming from the ongoing state of emergency, extended in mid-April for another three months, will continue to impair business and consumer confidence, holding back investment and consumption and keeping growth low by historical standards, Moody’s Investors Service warned last month.

The strong loss in momentum that the Turkish economy experienced during 2016 is expected to reverse only gradually as uncertainty recedes during the year, the European Commission said earlier this month. Supported firstly by net trade, momentum is set to improve towards the end of the year as domestic demand benefits from improvements in monetary conditions and confidence, according to the EC.

Turkey's Confidence Indices
  Economic Consumer Real Sector Services Retail Construction
Jan-16 95.6 71.6 106.5 92.5 108.8 83.9
Feb-16 90.2 66.6 105.1 89.2 106.2 82.8
Mar 93.4 67.0 104.6 93.5 110.5 81.4
Apr 90.9 68.5 105.3 89.9 103.9 81.5
May 93.8 68.8 105.0 94.5 103.8 79.2
Jun 94.7 69.4 104.1 95.8 99.6 80.9
Jul 98.7 67.0 105.7 100.9 103.6 83.0
Aug 92.0 74.4 101.7 91.1 101.2 79.4
Sep 97.0 74.3 106.6 96.2 98.0 82.0
Oct 95.0 74.0 104.9 94.5 96.2 81.3
Nov 95.5 68.9 108.2 96.8 96.0 75.7
Dec 89.5 63.4 103.9 93.3 96.1 76.1
Jan-17 85.9 66.9 100.6 87.5 95.9 74.8
Feb 91.5 65.7 106.2 92.9 97.9 76.4
Mar 96.0 67.8 106.5 96.9 97.7 85.8
Apr 99.5 71.3 106.3 99.9 101.6 85.7
May 100.5 72.8 104.8 102.0 102.8 86.3
source: tuik