Turkish consumer confidence falls 3% m/m to lowest level since 2008

Turkish consumer confidence falls 3% m/m to lowest level since 2008
By Akin Nazli in Belgrade October 23, 2018

Turkey's 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 national statistics office TUIK showed on October 23.

The reading saw its biggest decline in at least 14 years in September, nosediving 13% m/m. That was the sharpest monthly decline recorded since 2004 when the index was first compiled, and followed the 7% m/m drop posted in August.

In July, the consumer confidence index reached the highest point in 2018 to date, hitting 73.1. Sharp declines were registered for the subsequent three months on the back of the severe slump in the value of the Turkish lira (TRY), fears of an upcoming painful economic downturn and accelerating inflation.

Car sales collapse
“Consumer spending in Turkey and Argentina is likely to contract sharply over the next few quarters,” Alex Holmes of Capital Economics said on October 19 in a research note, adding: “The deterioration in consumer conditions has been worst in Turkey and Argentina, where inflation has jumped and central banks have been forced to hike aggressively in response to dramatic currency sell-offs. Retail sales growth slowed by 3-4%-points in the three months to August in those two countries. Purchases of large items such as cars, which are more sensitive to confidence and credit conditions, have collapsed.”

“The monetary tightening cycle that has started in large parts of the emerging world has further to run. More expensive and less readily-available credit is likely to weigh on consumer spending. The impact of aggressive tightening in Argentina and Turkey over the last few months will continue to feed through to consumption,” Holmes also said.

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

WAIR on vehicle loans fell slightly to 32.74% as of October 12 from 33.73% as of October 5 while annual mortgage rates declined to 28.59% from 29.06%.

The total loan volume of the Turkish banking industry fell to TRY2.62tn as of October 12 from TRY2.66tn as of October 6 while consumer loans declined by TRY580mn w/w to TRY412.9bn.

The annual consumer price inflation rate sprang from 17.9% in August to 24.52% in September, the highest level seen since 2003, TUIK announced on October 3.

Palliative measures
The government’s recently announced palliative measures to push the private sector to voluntarily cut prices of items included in TUIK’s inflation basket by 10% for two months and to dismiss the deputy TUIK director who was responsible for the inflation data could help get the inflation figures under control; but there is no certainty that consumers will perceive much improvement.

Total white goods sales in Turkey, including fridges, washing machines, dishwashers and ovens, declined by 37% y/y in September after contracting 20% y/y in August, Ergun Guler, head of the White Goods Manufacturers’ Association of Turkey (Turkbesd), said on October 18.

Across January-September, domestic sales declined by 16% y/y to 4.98mn units while exports rose 4.5% y/y to 13.87mn, according to Guler.

Overall sales (domestic + exports) fell by 1.9% y/y in January-September while Turkbesd expected overall sales to fall more than 5% y/y in 2018, Guler also said, adding that he expected domestic sales to contract further by 15-20% y/y in 2019.

Retail sales growth fell to an 18-month low of 1.3% y/y in August, TUIK announced on October 17.

Home sales in Turkey fell 9% y/y in September, while mortgage sales sank 72% y/y, TUIK reported on October 19.

On October 17, the Turkish Automotive Distributors’ Association (ODD) announced that it had cut its domestic vehicle sales forecast for 2018 from a previous 925,000-975,000 to 600,000, translating to an expected decline of 39% y/y compared to 983,720 in 2017. Vehicle sales in Turkey plunged 68% y/y in September after declining 53% y/y in Augustthe ODD reported on October 2. The ODD expected domestic sales to fall to 450,000 units in 2019.

Turkish voters are due to go to the polls for local elections by March 2019.

Debt-fuelled consumption has been the prime feature of the country’s remarkable economic growth achieved during much of the past decade.

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 fell 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%.

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