Signs of shrinkage becoming clear
The national output figures, which showed that the economy grew 5.2 percent in the second quarter, has not satisfied anyone. In fact, this ratio should be regarded as a good growth rate under normal conditions, but with the weight of national income expected to shrink in the second half of the year, this rate has lost its importance the day it was announced.
Looking at the expenditure side, we see that the consumption expenditures of households and the state in this quarter increased by 6.3 and 7.2 percent, respectively. There is a significant decrease in consumption growth of households compared to the first quarter while there is an increase in the public sector. However, it is almost certain that household spending will be shrinking in the second half of the year and the public sector, which has to enter a period of strict discipline, will not be able to increase its spending. At that point, the depth of the shrinkage will determine our foreign trade performance.
The slowdown in the increase in the seasonally- and calendar-adjusted GDP chain volume index, which shows how the economy is performing compared to the previous quarter, also gives a clue about the future. The growth rates of this index in the last 5 quarters are as follows: 2.5, 1.3, 1.6, 1.5 and finally 0.9.
On the other hand, almost all of the data published in the last 2 months clearly reveal that Turkey is rapidly entering into a recession:
• The growth rate of TRY loans has fallen well behind inflation. This shows that loans are actually falling in real terms. Total TRY commercial loans, which were TRY 964 billion at the beginning of June, declined to TRY 957 billion at the end of August, indicating a decline in nominal terms as well.
• There is also a rapid increase in interest rates on loans. The average of commercial loans of the banks announced by the Central Bank for August 31 is 32.4 percent! This rate was 16 percent four months ago.
• The Purchasing Managers’ Index (PMI), which closely correlates with production data, has remained below 50 for the last 4 months, indicating a contraction in production. In particular, it is not a good news that the PMI index, which was measured at 49.0 in July, fell quickly to 46.4 in August.
• More data on the weakening of the economy are the confidence indices. The economic confidence index, a compound index that TurkStat has been publishing, fell sharply in August to 83.9. This index has not decreased to these levels since the 2008 global crisis.
What I list above is concrete data. And of course there is also “anecdotal” news, such as liquidity shortages from the market, difficulties in the supply of goods and pricing. After all, it is certain that the economy has entered a recession. The crucial question at this point is: how big is this shrinkage and how long will it last?