Industrial production: any hint at future developmen­ts?

Dünya Executive - - DATA -

► As I see it, the May industrial production data doesn’t reveal much, except that there is still a widespread and significan­t fall. True, the head-on index fell by a mere 0.1 percent year-on-year, but this isn’t informativ­e as such. The weekdays-adjusted figure is 1.3 percent down whereas the seasonally- and weekdays-adjusted number showcases a 1.3 percent rise month-on-month.

► More important is the sources of contributi­on to the IP index. Other non-metallic minerals (-17 percent) – that reflects weak constructi­on activity, motor vehicles (-10 percent) , machinery & equipment (-9 percent) and suchlike are all down.

► Now there is ordinarily a strong correlatio­n between the IP and the GDP, but this doesn’t automatica­lly imply they will have the same sign. Still, since neither loans nor public spending will help in Q3, but because there is a mild positive base effect, I tend to think a couple of months more weak IP prints would imply negative or very low growth in Q3. That is, they will have the same sign this time around.

► In Q2, we are likely to see negative GDP growth, but a milder contractio­n compared to -2.6 percent of Q1.

► Pen in near zero growth anyway, as I have also penned in near zero growth for H2 2019. That means near zero growth for almost a year, possibly a slightly above zero GDP print for 2019 in toto due to base effects in Q4.

► This is so because car sales, house sales, loans, PMI, confidence indices all point in the same direction; a marked downturn in real activity is still going on. The relative stabilizat­ion of the lira, which I believe will last for a short while, is only a sine qua non for a restart, or a preconditi­on for buying some time before a tangible program is put forward, not a condition ensuring growth will be back shortly.

► As long as the corporate short position-to-GDP/weak (even negative) loan growth mix will be as it is today, the stagnation will persist.

► Actually, I would expect the IP to come back before housing, energy, car sales, durable sales strengthen. Because I expect a much stronger contributi­on from net exports going forward. That is reflected onto the IP data in May. Export-driven sectors fared better. But still no sign of domestic demand recovery.

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