Economy boosted by expectatio­ns but will the reality stand up?

Dünya Executive - - COMMENTARY - Alaatt n AKTAS Economist

Astudy co-authored by the Turkish Statistica­l Institute (TurkStat) and the Turkish Central Bank revealed that the consumer confidence index increased by a respectabl­e 11.1 percent in January compared to December. The increase was the second biggest for the last 15 years. First came the statement from TurkStat last week: The results of four key confidence sub-indices in January showd positive results. The service sector confidence index rose by 6 percent, the retail trade sector index rose by 5.6 percent, and constructi­on by 6.7 percent.

Let’s recall how these indices changed in December: the service sector confidence index rose by 3.5 percent, constructi­on sector confidence declined by one percent, and the retail trade sector index rose by only 0.7 percent. So all these sub-indices clearly got back to a positive trend in January after a weak De-

cember. The last statement, on the same day, came from the Central Bank. The real sector confidence index rose by 5 points, from 103.3 up to 108.3. Real sector index changes are indicated with points and not with percentage­s by structure.

The change n sub- nd ces

Let’s go into particular­s as there are some rates which stand out. In service sector confidence, for instance, there was a decline of 5.2 percent in terms of the index for unemployme­nt over the last three months. The same index rose by 8.5 percent in January. The sub-index of demand in the services sector declined by 4.7 percent in December but rose by 9.8 percent in January. The retail sales index for the preceding three months rose by 1.3 percent in December and 8.9 percent in January. The expectatio­n regarding sales for the

upcoming three months declined by 1.1 percent, and increased again by 7.8 percent in January.

The sub-index for the constructi­on sector, which reveals the current state of recorded orders, increased by 15.9 percent in January after declining by 3.5 percent in December. Two sub-items among the real sector confidence index released by the Central Bank are noteworthy: The index regarding the amount of export orders for the next three months rose by 18.7 points (from 99.4 to 118.1) and the production volume index for the next three months rose by 12.9 points (from 99.7 to 110.6). These are very crucial increases.

What’s beh nd the ncreases?

Really, what’s going on?! Were the consumer and producer sectors overly pessimisti­c in December? Were they seeing a future without hope? Did their pessimism moderate in January? Or were they overly optimistic in January and the December results were the more accurate?

We have no concrete answer to these questions. Someone may have an answer, but we can’t know what it is. What can we speculate are the factors that suddenly improved expectatio­ns in all indices?

It is not possible to talk about any single developmen­t that would affect all indices at the same time. First of all, the consumer confidence index and other indices are fundamenta­lly different. The consumer confidence index is self-explanator­y. The other indices, on the other hand, concern rather those who produce goods and services. Hence, it’s seen as a little odd that expectatio­ns on both the consumer and producer side improved. There is no concrete signal for such an improvemen­t.

In terms of the consumer confidence index, the exchange rate may have had an impact. It’s arguable that the moderate decline across foreign exchange rates in the first half of this month may have improved the expectatio­ns, as there was an increase expected.

We specifical­ly emphasize “the change in the foreign exchange in the first half of the month” as all indices are compiled by surveys and field research made in the first two weeks of the month. Therefore, confidence indices are ignorant to the improvemen­ts in the second half of the month. So, it’s useful to consider what happened to the economy in the first half of the month. But even then, there is no improvemen­t that may lead to such an improvemen­t in expectatio­ns.

Official statements on employment mobilizati­on and the resulting decline of unemployme­nt may have improved consumer confidence. But there is a contradict­ion here: If consumer confidence rises only due to the increase in employment spurred by incentives, it is expected that the other confidence indices would decrease as an artificial rise in employment would put pressure on employers. However, we see that confidence has grown on all sides.

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