Data indicate an economic slowdown

tension, which THE RUSSIAɓUKRAINE has been underestimated by many for a long time, turned from a threat to a reality on the morning of February 24, with Russian military forces entering Ukraine. We’ll watch and see what happens next. However, the entry into war by two important partners of Turkey in foreign trade, tourism, energy, and agriculture is a key economic risk for 2022.

After the decline in the consumer confidence index recently, a decrease was announced in the confidence indices for the industry, services, retail, and construction sectors in February. This indicates a slowdown in growth in the first quarter of 2022.

Value Added Tax (VAT) reductions on food products were a positive development for the consumer and the food industry. However, due to the exchange rate, which started to rise again at the end of the month, and to commodity prices that started to increase again, possible hikes in product prices in the coming period may eliminate this positive effect.

WEAKER Q4 GROWTH

We will start the week with growth data. Turkish Statistical Institute (TurkStat) will announce the growth rate for the last quarter of 2021 and the overall growth rate for the year on Monday. The Turkish economy grew by 7.4%, 22%, and 7.4%, respectively, in the first three quarters of the year. However, the Turkish economy began to perform below the first nine months in the last quarter in most sectors due to the fluctuation in exchange rates and subsequent deteriorating expectations. For this reason, we will see very low growth in the last quarter compared to the previous ones. However, we will have reached a rate of around 9% for the whole year, a rate above global growth.

Some data in January and February show that the slowdown in the economy that started at the end of 2021 continues into this year, as well. If the Russia-Ukraine war lasts for long, one of the countries that will be affected the most will be Turkey.

PMI COULD DROP BELOW 50

On Tuesday morning, the Istanbul Chamber of Industry (ISO) will release PMI data for February. PMI, which has been above 50 since last May, fell to its lowest value in the last eight months in January but was still slightly above the threshold with 50.5 points.

Although the main indicator of 50.5 points refers to growth, only four of the ten sectors were above 50. The four sectors that continued to grow in January are the clothing-leather, non-metallic minerals, chemistry plastics, and vehicle production sectors. The food, textile, wood-paper, basic metal, machinery, and electric-electronic sectors shrunk.

The PMI is calculated by weighting five separate sub-indices, and despite weak performance in the

details, the main index remained positive in January, largely due to the strong stance in the employment sub-index.

With the latest developments, the probability of the index falling below 50 when the February data is announced has increased. We may see a slow trend in the industry over the next few months.

WILL ENERGY IMPORTS CONTINUE TO RISE?

The Ministry of Commerce will announce provisional foreign trade data for February this week. In January, we saw an increase of 17% in exports and 55% in imports. The main reason for this rapid increase in imports is the jump in energy. Energy imports, which rose every month throughout 2021, reached USD 9bn last January, the highest monthly amount in our import history. Current indicators suggest that the uptrend will continue over the next few months. Recently, commodity prices have started to climb again due to the tension to our north. This indicates that we may see large increases in other import items soon.

On the other hand, I think that the vitality of exports in 2021 continued in the first months of 2022. However, there may be more moderate increases in the springtime months.

A NEW RECORD IN INFLATION?

The most critical data to be released this week is February inflation, which will be announced on Thursday morning. If we were in a normal process, growth would be most important. However, inflation and the high cost of living, at their peak of the last 19-20 years, made inflation data more important than ever.

We followed a stable course in exchange rates throughout the month. After a brief rise in the past few days, it went down to 14 again. Therefore, an inflation effect by the exchange rate will be very limited.

VAT reduction on food products during the month has a downward effect on inflation, albeit, below one point. Therefore, one should not be optimistic just by looking at it. The gradual effects of the previous hikes and the transitivity from the Producer Price Index (PPI) will lead to high inflation again this month. Consumer inflation (CPI), which was 48.7% in January, will rise slightly above 50% this week. On the PPI side, it is possible that the increase, which reached 93.5% in January, will slow down a little. In other words, a higher CPI and a lower PPI increase compared to last month would not be surprising.