Optimistic outlook may be deceptive

Dunya Executive - - Commentary - Ugur CIVELEK Analyst

Data released by TurkStat last week suggests that negative pressures are partly diminishing. The February economic confidence index rose by 6.8 percent. January foreign trade figures signaled a recession may be staved off: Exports increased year-on-year 18.1 percent and imports by 15.9 percent, while the external deficit increased by 10.3 percent, exceeding the level of $4.3 billion.

Yet this view may be misleading. The economic confidence index is highly influenced by shortterm market trends, more than the hope that politicians would like to stoke before the referendum. In other words, it is unlikely that this upward movement will continue throughout the year. Concerns about global moves towards protectionism, negative forecasts about Turkish inflation, uncertainty about fixed-income securities and the growing perception of fragility are encouraging the tendency to avoid risk.

Foreign trade data, free of seasonal and calendar effects, suggests that the recovery in the figures may be due to the base effect. The rise in commodity prices may also have contributed to a more positive outlook. It is also necessary to consider the fact that the orders for January exports and imports were made prior to the exchange-rate movements, which became more significant beginning in November. The weaker lira could create addition- al difficulties in the debt-collection chain due to changed price sets and expectations.

Global expectations and market trends are likely to continue to be shaped by U.S. policy. Both protectionist statements from Washington and expectations for higher dollar interest rates seem to have not been priced in sufficiently for the time being. So it is hard to see short-term and optimistic tendencies lasting.

Rising inflation and interest rates in Turkey, decreasing trade volume due to increased protectionism and renewed risk aversion may create serious problems, such as the contraction of capital movements in our country. When these take effect, both the economic confidence index and our foreign trade figures may begin to head in directions we don’t want them to go.

For the time being, we do not face those negatives, as global markets have avoided pricing them in. But it is necessary to question why that is the case. Is it possible to discourage U.S. officials from increasing protectionist measures and interest rates? If not, what are the big players in the markets thinking?

Since high-risk positions are no longer manageable, those players have tried to keep their losses limited by manipulating markets for some time. They know very well that they cannot go on like this, but they remain unreasonably stubborn because they cannot find another way out.

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