Monthly Economic Monitor Turkey

Monthly Economic Monitor

Turkey
06 SEPTEMBER 2017
 Monthly Economic Monitor Turkey

Global Developments

World GDP growth World manufacturing PMI

forecasts based on BBVA-GAIN (%, QoQ) Level

1.2
54

53
1.0

52

0.8
51

50
0.6

49

0.4
48
Mar-14

Mar-15

Mar-16

Mar-17
Sep-13

Sep-14

Sep-15

Sep-16

Sep-17

May-16

May-17
Mar-16

Jul-16

Mar-17

Jul-17
Sep-15

Nov-15

Sep-16

Nov-16
Jan-16

Jan-17
CI 20% CI 40% CI 60%
Point Estimates Period average EM Developed World

Source: BBVA - Garanti Research, Bloomberg

First signals imply that global GDP growth remains solid in 3Q, though with some signs of
stabilization. Stronger growth in China has been supportive so far, while the recovery in Europe
2
takes the lead among the developed economies.
 Monthly Economic Monitor Turkey

Global Financial Markets

BBVA Research financial stress index Financial stress index regional map
Normalized index Standard deviation ≈ (-1, 1)

May-17
Aug-16

Sep-16

Nov-16

Dec-16

Aug-17
Feb-17

Mar-17
Oct-16

Jan-17

Jun-17
Apr-17

Jul-17
1.5
US
EZ
Latam
Brazil
Chile
0.5
Colombia
Mexico
Peru
EMEA
Czech Republic
-0.5
Hungary
Poland
Russia
Turkey
Asia
-1.5
China
May-15

May-16

Feb-17

May-17
Feb-15

Feb-16
Aug-14

Nov-14

Aug-15

Nov-15

Aug-16

Nov-16

Aug-17

India
Indonesia
Korea
Developed Emerging Malaysia

Source: BBVA Research, Bloomberg

Markets have gained optimism after the Jackson Hole Symposium as Yellen didn’t mention
financial stability as a key issue in the US that could influence the Fed’s monetary policy
3
normalization, while Draghi didn’t appear concerned about the recent upward trend in EUR.
 Monthly Economic Monitor Turkey

Flows to Turkish Assets and Interest Rates

Flows to Turkish assets Yield curve

Level, bn TL (%)

12.0
2.2
1.9 11.5
1.6
11.0
1.3
1 10.5
0.7
10.0
0.4
0.1 9.5
-0.2
9.0
-0.5
-0.8 8.5
-1.1
Jul-16

Feb-17

Mar-17

Apr-17

Jul-17
Nov-16

Dec-16
Jun-16

Aug-16

Sep-16

Jan-17

Jun-17

Aug-17

8.0
3A 6A 1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y

Bonds Equities Total Aug.17 Jul.17 Dec.16 Aug.16

Source: Garanti Research, CBT, Bloomberg

Strong inflows into Turkish bond markets in the previous months were replaced with marginal
outflows by mid-August. Yield curve slightly shifted upwards, especially in the short end as a
4
result of the CBRT’s ongoing hawkish stance and the Treasury's higher borrowings.
 Monthly Economic Monitor Turkey

Exchange Rate: USD/TL

USD/TL USD/TL: Global and local factors

(Level) (% weekly change)

3.99 Comments
on rates 4.0%
Softened speeches &
3.79 CBRT actions 2.5%
Reina
Attack
1.0%
3.59
GDP
Global
-0.5%
Revision
3.39 Optimism
Trump -2.0%
Kurdish Victory
3.19 Opposition -3.5%
Leaders in
Coup Custody
-5.0%
2.99 Attempt

Davutoglu Moody's -6.5%

10-Mar
20-Mar
28-Mar
05-Apr
13-Apr
21-Apr
01-May
09-May
17-May
25-May

20-Jun
02-Jun
12-Jun

28-Jun
06-Jul
14-Jul
24-Jul
01-Aug
09-Aug
17-Aug
25-Aug
04-Sep
resigned downgrade
2.79
Mar-16

May-16

Jul-16

Mar-17

May-17

Jul-17
Jan-16

Sep-16

Nov-16

Jan-17

Sep-17

Global Component % Local Component % TL Weekly Change %

Source: Garanti Research, Bloomberg

After following a suit above 3.50 throughout August, TRY appreciated against US dollar stepping
below 3.50 in the last few days of the month, reflecting the recent risk-on mood towards EMs.
5
 Monthly Economic Monitor Turkey

Economic Activity: GDP

Activity Indicators MONTHLY GDP GROWTH & ESTIMATE

(3 MA, YoY Change, %) (YoY Change, %)

2016 2017 11%

Hundreds
M ean Nov Dec Jan Feb Mar Apr May Jun Jul
10%
9%
Industrial Production 3.6 0.4 2.0 3.3 1.2 1.7 2.3 4.2 2.1
Non-metal Mineral 1.2 1.7 -1.0 -4.2 -6.9 -2.0 -0.4 2.7 0.9 8%
Electricity Production 4.2 2.6 5.1 6.4 7.1 8.2 7.3 6.6 4.5 8.4 7%
Auto Sales 3.3 24.1 10.2 6.4 -8.8 -7.5 -10.9 -10.3 -9.7
6%
Tourist Arriv als 2.9 -23.8 -17.6 -11.7 -8.3 -7.0 0.9 7.5 20.8
5%
Number of Employ ed 3.5 1.5 1.3 1.3 1.4 1.7 1.9 2.0
Number of Unemploy ed 5.7 16.1 18.6 20.3 21.0 20.9 19.4 16.2 4%
Auto Imports 5.7 31.7 16.4 11.1 -8.1 -12.7 -14.7 -13.9 -14.4
3%
Auto Exports 8.5 -10.6 -1.7 33.5 30.2 33.5 27.1 32.4 24.0 2%
Financial Conditions 73.3 80.1 73.6 59.0 42.6 38.3 34.4 30.6 35.6 40.5 1%
Credit Growth-13Week 12.7 14.0 14.3 14.0 14.7 15.3 15.6 15.6 16.3 17.0 0%
BBVA-GB GDP Growth (Monthly)
Retail Sales 3.8 -0.5 -1.8 -2.3 -3.2 -2.3 -1.7 0.2 0.5 -1%
Real Sector Conf idence 106.7 108.2 103.9 100.6 106.2 106.5 106.3 104.8 108.8 107.7 GDP Growth
-2%
GDP growth nowcast June: 5.1% (96% of info)
MICA Forecast 5.9% 6.4% 5.1% 6.1% -3% July: 6.1% (32% of info)
GDP Y oY 3.5% 5.0%
-4%

Apr-14
Jul-14

Apr-15
Jul-15

Apr-16
Jul-16

Apr-17
Jul-17
Oct-13

Oct-14

Oct-15

Oct-16
Jan-14

Jan-15

Jan-16

Jan-17
Co ntractio n Slo w-do wn Gro wth Boom

Source: Garanti Research, Turkstat, Bloomberg

Our monthly GDP indicator signals 6% growth in July with available preliminary indicators
(32% info so far), and acceleration will gain pace resulting in at least 7% growth in 3Q even if
6
GDP would not grow at all on quarterly basis.
 Monthly Economic Monitor Turkey

Economic Activity: Sectors

Sectors in Industrial Production (IP) Retail sales and IP exc. auto and electricity
(3MA, calendar adj, YoY) 3MA, calendar adj, YoY

6% 6.0%
5.0%
5%
4.0%
4%
3.0%
3%
2.0%
2%
1.0%
1%
0.0%
0%
-1.0%
-1% -2.0%
-2% -3.0%
-3% -4.0%
Feb-16

Apr-16

Apr-17
Oct-15

Oct-16

Feb-17
Aug-15

Dec-15

Aug-16

Dec-16
Jun-15

Jun-16

Jun-17

Apr-16

Apr-17
Oct-15

Feb-16

Oct-16

Feb-17
Aug-15

Dec-15

Aug-16

Dec-16

Jun-17
Jun-15

Jun-16
IP Exporting Sectors Domestic Oriented Sectors IP Excluding Auto & Electricity Production Retail Sales

Source: Garanti Research, Turkstat, CBT, Ministry of Culture and Tourism

In 2Q, IP growth was supported by many sub-sectors and the contribution from domestic
demand oriented sectors increased. 3Q growth will advance further on favorable base effects
7
from last year’s contraction and shift in calendar days.
 Monthly Economic Monitor Turkey

Economic Activity: Employment

Unemployment rate Employment growth in sectors

SA YoY

12.0% 23%
14%
11.5% 22%
11%
21%
11.0%
20% 8%
10.5%
19% 5%
10.0%
18% 2%
9.5%
17%
-2%
9.0% 16%
-5%
8.5% 15%
May-13

May-14

May-15

May-16

May-17
Sep-13

Sep-14
Jan-14

Jan-15

Sep-15

Jan-16

Sep-16

Jan-17

-8%

May-13

May-14

May-15

May-16

May-17
Sep-13

Sep-14

Sep-15

Sep-16
Jan-14

Jan-15

Jan-16

Jan-17
Unemployment Rate Youth people unemployment rate-rhs
Industry Construction Service

Source: Garanti Research, Turkstat

Unemployment rate fell to 10.2% in May, gradually declining with seasonal factors but still
80bps higher than the year before. Employment creation depending mostly on services sector
8
poses risks over the sustainability of current high growth rates.
 Monthly Economic Monitor Turkey

Economic Activity: External Balance

Foreign trade figures Tourism

3MA, YoY Change 3MA, YoY Change

22%
38%
18%
30%
14%
23%
10%
15%
6%
8%
2%
0%
-2%
-8%
-6%
-10% -15%
-14% -23%
-18% -30%
August preliminary figures
-22% -38%
-26% -45%

Jul-12

Mar-13
Jul-13

Mar-14
Jul-14

Mar-15
Jul-15

Mar-16
Jul-16

Mar-17
Jul-17
Nov-12

Nov-13

Nov-14

Nov-15

Nov-16
Jul-15

Mar-16

May-16

Jul-16

Mar-17

May-17

Jul-17
Sep-15

Nov-15

Sep-16

Nov-16
Jan-16

Jan-17

Nominal Exports Nominal Imports Foreign Tourist Arrivals Tourism Revenue

Source: Garanti Research, Turkstat, Ministry of Culture and Tourism

Foreign trade figures picked up in July with imports beating the exports on higher energy
and soaring gold imports. Tourist arrivals continue to recover but tourism revenues lag
behind due to less purchasing power of the changing tourist composition. 9
 Monthly Economic Monitor Turkey

Inflation

CPI and its components CBRT Survey: Inflation expectations

YoY YoY

8.5%
17%

14% 8.0%

11%
7.5%
8% upper bound of the inflation target
7.0%
5%
6.5%
2%

-1% 6.0%

-4%
5.5%
May-14

May-15

May-16

May-17
Feb-14

Feb-15

Feb-16

Feb-17
Aug-13
Nov-13

Aug-14
Nov-14

Aug-15
Nov-15

Aug-16
Nov-16

Aug-17

Apr-12

Apr-13

Apr-14

Apr-15

Apr-16

Apr-17
Dec-11

Dec-12

Dec-13

Dec-14

Dec-15

Dec-16
Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-17
Core Food Energy CPI 12-month ahead 24-month ahead

Source: Garanti Research, Turkstat, CBRT

Annual headline inflation climbed to double digits again in August. Increasing food and energy
prices, as well as core inflation drew the jump in the headline.12-month and 24-month
10
inflation expectations stayed hovering around high levels.
 Monthly Economic Monitor Turkey

Inflation

Core inflation and currency basket Domestic PPI and USD/TL

YoY YoY

11% 30% 18% 40%

25% 16%
10% 30%
20% 14%
9%
15% 12% 20%

8% 10% 10%
10%
5% 8%
7%
0% 6% 0%
6% 4%
-5%
-10%
5% -10% 2%
Apr-13

Apr-14

Apr-15

Apr-16

Apr-17
Dec-13

Dec-14

Dec-15

Dec-16
Aug-13

Aug-14

Aug-15

Aug-16

Aug-17

0% -20%

Feb-12

Feb-13

Feb-14

Feb-15

Feb-16

Feb-17
Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-17
Core Inflation Currency Basket 2M Lag - rhs Domestic PPI USDTRY - rhs

Source: Garanti Research, Turkstat, CBRT

Core inflation jumped by 100bps in the last 2 months due to recent appreciation of euro and
second round price effects together with the narrowing output gap. PPI also picked up in the
11
same period implying ongoing upward pressures from cost push factors on consumer prices.
 Monthly Economic Monitor Turkey

Monetary Policy

CBRT interest rate corridor CBRT funding composition

Levels Levels, bn TL

135
15%
Hundreds

120
14%
105
12%
11% 90

9% 75

8% 60
6% 45
5% 30
3% 15
May-13

May-14

May-15

May-16

May-17
Sep-13

Jan-14

Sep-14

Jan-15

Sep-15

Jan-16

Sep-16

Jan-17

Sep-17

Jul-17
Feb-17

Mar-17

Apr-17

May-17
Jan-17

Jan-17

Jun-17

Jun-17

Aug-17
ON Lending-Borrowing ON Borrowing
CBRT One-Week Repo CBRT Cost of Funding
CBRT LLW LLW Total ON Lending 1-week repo

Source: Garanti Research, Turkstat, CBT, Bloomberg

The hawkish stance of the CBRT kept the average funding rate very close to 12% throughout
August. High trend in inflation (close to 11% until December) will force the CBRT to stay tight
12
despite the recent retreatment in USD/TL.
 Monthly Economic Monitor Turkey

Loan Growth and Interest Rates

Loan growth rates Loan interest rates

13-week annualized
4-week average

19%
45%
17%

35%
15%

25% 13%

15% 11%

5% 9%

7%
-5%

Feb-15
Apr-15

Feb-16
Apr-16

Feb-17
Apr-17
Oct-14

Oct-15

Oct-16
Dec-14

Dec-15

Jun-16

Dec-16
Aug-14

Jun-15
Aug-15

Aug-16

Jun-17
Aug-17
Feb-16

Apr-16

Feb-17

Apr-17
Oct-15

Dec-15

Oct-16

Dec-16
Aug-15

Jun-16

Aug-16

Jun-17

Aug-17

Auto Loans Housing Loans

Commercial Loans (FX adjusted) Consumer Loans Commercial Loans Other Consumer
Deposit Interest Rate

Source: Garanti Research, Turkstat, CBT, BRSA, Bloomberg

Commercial loan growth trend continued to ease from very high levels on cooling down
Credit Guarantee Fund utilizations, while the stabilization in deposit rates became clearer
13
helping net interest rate margin.
 Monthly Economic Monitor Turkey

Fiscal Policy

Budget revenues and expenditures Tax revenues and non-interest expenditures

12-month sum, YoY Change
12-month sum, YoY Change
22%
22%

20% 20%
18%
18%
16%
16% 14%
12%
14%
10%
12% 8%
6%
10%
4%
8% 2%
Apr-14

Jul-14

Oct-14

Apr-15

Jul-15

Oct-15

Apr-16

Jul-16

Oct-16

Apr-17

Jul-17
Jan-15

Jan-16

Jan-17

Apr-14

Jul-14

Oct-14

Apr-15

Jul-15

Oct-15

Apr-16

Jul-16

Oct-16

Apr-17

Jul-17
Jan-15

Jan-16

Jan-17
Revenues Expenditures Tax revenues Non-Interest Expenditures

Source: Garanti Research, Turkstat, CBT, BRSA, Bloomberg

Budget revenues were supported by the jump in tax revenues in July, confirming the rebound in
activity in terms of both consumption and investment. Budget expenditures were still high,
14
though losing momentum as the Government scales back it expenditures on current transfers.
 Monthly Economic Monitor Turkey

External Balance: CAB & Financing

Current account balance Current account balance financing

12-month sum, USD bn
12-month sum, % GDP

30
10%
10
8%
-10
6%
-30
4%

-50
2%

-70
0%

-90 -2%
Jun-09
Jun-06

Jun-07

Jun-08

Jun-10

Jun-11

Jun-12

Jun-13

Jun-14

Jun-15

Jun-16

Jun-17

Jun-07

Jun-08

Jun-09

Jun-10

Jun-11

Jun-12

Jun-13

Jun-14

Jun-15

Jun-16

Jun-17
CAB CAB Exc. Energy & Gold Net Other Investment Net FDI
Net Portfolio Flows CAD

Source: Garanti Research, Turkstat, CBT, BRSA, Bloomberg

Current account deficit temporarily eased to USD34.3bn in June (4.1% of GDP) on top of
strong exports growth and recovery in tourism sector. Foreign trade figures of July imply a
15
deficit close to USD37bn, which will likely to stay at those levels until 4Q.
 Monthly Economic Monitor Turkey

DISCLAIMER

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expresses data, opinions or estimations regarding the date of issue of the report, prepared by BBVA or obtained from or
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 Monthly Economic Monitor Turkey

Monthly Economic Monitor

Turkey
06 SEPTEMBER 2017

Seda Güler
Asuman Kemiksiz
Gizem Önen