Turkey’s retail sales fall for first time since early 2017

Turkey’s retail sales fall for first time since early 2017
By Akin Nazli in Belgrade November 19, 2018

Turkey's calendar-adjusted retail sales volume index declined by 3.4% y/y in September, marking the first annual contraction since February 2017, national statistics office TUIK reported on November 19.

The 3.4% annual contraction was also the biggest recorded since 2010 when the data set was first compiled, according to TUIK’s revised series.

Consumers are tightening their belts with Turkey mired in a currency crisis and wary of sliding into a debt crisis coupled with a steep recession. The economy is being buffeted by rising double-digit inflation which is at a 15-year-high, with the country seen as in the midst of a recession that began in September.

“The sharp fall in the lira this year, which has pushed inflation up to a 15-year high, and the associated sharp tightening of financial conditions has hit domestic demand hard,” William Jackson of Capital Economics said on November 16 in a research note.

“For 2019 we see a risk of premature fiscal stimulus as the government will try to support the struggling economy ahead of the March municipal elections. In the past, the state of the economy has been trivial for the local election outcome. Leading indicators point toward a sharp recession, which may weigh on the support of the ruling AK-party,” Nora Neuteboom and Georgette Boele of ABN Amro said on November 15 in a research note entitled “Worst of lira weakness behind us”.

“Slowed more than anticipated”
“The economy has slowed more than anticipated given the plunge in credit supply and sharp drop in confidence. Recent financial volatility and consequent tightening of financial conditions continue to weigh on domestic demand, especially on private consumption and investment, reinforcing the downbeat economic outlook in the period ahead,” Muhammet Mercan of ING Bank said on November 16 in a research note on industrial production.

Turkey’s economic confidence index fell further by 5% m/m to 67.5 in October, the lowest level seen since January 2009, TUIK said on October 31

The seasonally-adjusted retail confidence index declined further by 1.8% m/m in October and it hit a fresh record low level of 87 following a 5.2% m/m fall in the previous month.

The consumer sentiment index fell by another 3% m/m to 57.3 in October, marking the lowest level seen since December 2008, data released by TUIK showed on October 23.

Weighted average interest rates (WAIR) on lira-denominated consumer loans declined to 37.13% as of November 9 from 37.39% as of November 2, according to the latest data obtained from the central bank. The rate stood as high as 39.36% as of October 12, at 23.87% at the end of June and at 19.74% at the end of March.

The total loan volume of the Turkish banking industry fell to TRY2.346tn as of November 9 from TRY2.35tn as of November 2 while consumer loans declined to TRY407bn from TRY408bn.

Total loan volume stood as high as TRY2.59tn at end-August, including TRY420bn of consumer loans.

Ultra-risky steps to relax liquidity conditions
Meanwhile, the Turkish government is taking ultra-risky steps to relax liquidity conditions in the domestic market.

Ugur Gurses, who left his job at the central bank following the country’s 1994 crisis, became the latest economist to sound a warning in this policy area with a blog post entitled “Have you seen this movie?”. The post dealt with the Treasury running out of cash while desperately trying to supress interest rates and expand liquidity.

Gurses was long a moderate neoliberal figure in the Turkish mainstream media until he joined the growing crowd of ‘lepers’ in July after he attempted to question the Capital Markets Board’s (SPK’s) decision on insider trading in his column for daily Hurriyet while his new boss was bargaining for a mandatory tender call price.

On November 16, state-owned Ziraat Bankasi said in a bourse filing that it had mandated UniCredit Bank AG to issue up to $1.5bn worth of mortgage-backed bonds abroad. It also said that it will issue up to $1bn (TRY5.43bn) worth of identical papers domestically without a public offering.

Last month, Turkish President Recep Tayyip Erdogan’s spokesman Ibrahim Kalin confirmed that the government used the country’s unemployment fund to buy a total of TRY10.9bn worth of subordinated debt from Vakifbank, Halkbank and Turk Eximbank.

Also on November 16, Ziraat Bankasi said in a separate bourse filing that the SPK approved like greased lightning its November 14-dated application regarding mortgage-backed papers.

Turkey’s annual consumer price inflation rate moved up to 25.24% in October from 24.52% in September, the TUIK announced on November 5.

Annual home price growth in Turkey edged up from 9.86% in August to 10.48% in September, however the gap between the price growth and inflation reached 14.04pp from 8.04pp in August, central bank data showed on November 16.

Turkey’s average annual retail sales growth jumped to 5.7% in 2017 from 2.2% in 2016, according to the TUIK’s revised index. Based on the old series, year on year retail sales growth very slightly escalated from 0.8% in 2016—the lowest annual rise ever—to 1% in 2017.

TUIK also regularly revises each month its previously released data based on its revised index.

Real private consumption growth declined to 6.3% y/y in Q2 from 9.3% in Q1 while private consumption’s share in Turkey’s overall GDP based on current prices also declined to 59% from 60.3%, according to the latest GDP data. Real private consumption growth was 6.1% in 2017 and private consumption’s share in overall GDP was 59%.

Average monthly annual retail sales growth declined to 0.4% in Q3 from 5.9% in Q2 and 8.9% in Q1 2018, according to TUIK’s retail sales data.

However, it should be noted that TUIK’s recent GDP data releases conflicted with initial indicators.

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