Ordinarily, quarter-on-quarter seasonally- and calendar-adjusted positive growth can be considered a positive sign that the head-on GDP growth will be positive next quarter. Now, QoQ growth reads as 1.3 percent. So? This is what I had posited in the beginning of the year, calling it “the business cycle chronology” recovery.
However, I can’t repeat that comment now. No, this time around, QoQ recovery may not be indicative of a genuine recovery ahead.
Why? First, from an expenditure viewpoint it is only the government that spends. This can’t be repeated. It was a one-off in the run-up to local elections.
Second, the contribution of net exports is basically a negative consequence of a downsizing domestic demand because it mainly derives from imports contracting by 28.8 percent year-on-year.
Third, investments are down by 13 percent. That was 12.9 percent in the previous quarter. Hence, nothing has changed in Q1 on that front.
Fourth, public banks’ lending jumped ahead of elections, and contributed to the rather lenient 2.6 percent yearly GDP contraction. That can’t be repeated either in Q2.
Fifth, construction shows no signs of recovery. In fact, it is down by 10.9 percent in Q1 2019 on top of the 8.7 percent contraction in Q4 2018.
Sixth, even services don’t perform now. Services are down by four percent year-on-year. What is positive under “other services’ is basically public services. The private service sector has severely contracted. Services come with a lag.
Seventh, currency (asset) substitution is now so pervasive that even government debt is being dollarized.
Unless the lira is stabilized for good, balance sheet recession will continue. This point has been elaborated in my main article. High time to come up with a credible commitment.