ISTANBUL BLOG: Turkey’s latest GDP release indicates Simsek is making a beeline for the middle ground

ISTANBUL BLOG: Turkey’s latest GDP release indicates Simsek is making a beeline for the middle ground
/ bne IntelliNews
By Akin Nazli in Belgrade August 31, 2023

Turkey’s official gross domestic product (GDP) expanded by 3.8% y/y in Q2, the Turkish Statistical Institute (TUIK or TurkStat) said on August 31. Growth thus slowed less than anticipated. The median forecast in a Bloomberg survey of analysts was 3.1%.

For Q1, the TUIK revised its previously reported official growth figure of 4% downwards to 3.9%.

It is not advisable to plan, price or draw inferences based on TUIK data. There is widespread concern at methodologies employed by the agency. 

Turkey has so far led the global inflationary period. Now, it is leading the stagflation, or "slumpflation", period.

The TUIK, as has become usual in recent years, is, according to its data series, on course to release full-year GDP growth of around 5% for 2023.

In response to the Q2 data release, Turkey’s finance minister Mehmet Simsek (@memetsimsek), who typically opts to tweet in communicating with the public, wrote in a Turkish-language post that the TUIK will release an official growth rate of higher than 4% for 2023.

Tweet: Simsek tweeted about the TUIK’s official GDP data release.

Under the usual course of events in Turkey, this “public auction” in which top officials discuss what the full-year official growth outcome will be, would bring the country’s 2023 GDP expansion into the double digits by the time of the 12-month data release in March 2024.

However, Simsek, who is concentrated on trying to attract some portfolio inflows from global investors, needs to advise foreign players that he has curbed both growth and the trade deficit. He also has a rather burdensome domestic constraint, namely Turkey’s mercurial President Recep Tayyip Erdogan, who can suddenly plunge into the nation’s economic affairs at any time.

If Simsek could declare “I created a recession”, that would be the best thing in terms of marketing Turkey to the global finance industry. But Erdogan would then very likely administer a slap to his shiny pate.

All-in-all, it seems that Simsek is planning to find middle ground at above 4% growth.

In his tweet, Simsek also noted that the TUIK released a negative contribution to official GDP growth from net exports.

The trade deficit has boomed again. Simsek must work a position in which he can close some of the trade gap while pinning hopes on financial inflows from the global crowd.

So, we can see that when it comes to Q3 and Q4, the TUIK will be found downgrading domestic consumption’s positive contribution to the official growth figure while also lowering the negative contribution of net exports, or even turning it to positive.

A good thing here is that the actual trade figures have no impact on the contribution to growth from net exports thanks to Eurostat’s’ high-level mathematical standards set for GDP calculations.

Another interesting thing about Simsek’s performance is that, while in his Turkish tweets for the home audience he talks about the trade deficit, at the same time he is talking to foreigners about booming tourist arrivals.

Tweet: Simsek encourages foreign players with talk about “a more stable Lira”.

Why Simsek is talking about his desire for a more stable lira at this time is unknown, given that the USD/TRY rate is once again drawing a perfectly horizontal line at just below the 27-level.

Chart: The USD/TRY rate is tracking a perfectly stable line.

On August 24, the central bank’s monetary policy committee (MPC) announced a policy rate hike of a far larger than expected 750 bp, taking the benchmark to 25%. The market expectation was for 250bp.

Following the rate hike, the USD/TRY pair fell into the 25s from the 27s, while Turkey’s five-year credit default swaps (CDS) dropped to below the 400 level.

Tweet: The central bank’s net FX position decreased by $1bn on August 24.

Twit: The central bank’s net FX position decreased by $5bn in the week between August 21 and August 25.

In May, unnamed sources told Bloomberg that Turkey’s central bank asked some local lenders to buy the country’s dollar bonds to prevent a CDS spike.

The search for some fools (keriz in Turkish) who will purchase Turkish papers continues.

On a longer-term perspective, Simsek is talking about a slowdown in domestic demand in 2024.

Tweet: Simsek will slow domestic consumption in 2024.

In March 2024, Turkey will hold local elections, with Erdogan intent on winning back Ankara and Istanbul from the opposition. Turks will face harsher economic conditions following those elections as Simsek will have a freer hand to deliver what is demanded by the finance industry in return for financial inflows.

The talk of boosting exports is in reality stale and nonsensical, it is for the birds. If you are a newcomer to the Turkey story, just ignore the talk of boosting exports. There’s no need to spend any time on it. As mentioned above, the real trade activity in fact has no connection with the GDP calculations. Simsek is free to write down anything he likes about exports in GDP releases based on his preferences at the given time.