Tur­key’s re­ces­sion and the in­fla­tion clamp

Dünya Executive - - COMMENTARY - Tu­grul BELLI Colum­nist

Two im­por­tant data were an­nounced last week. The first was sec­ond quar­ter growth, in which we ex­pe­ri­enced a con­trac­tion of 1.5 per­cent in line with ex­pec­ta­tions. Although not a big sur­prise, the 22.8 per­cent de­cline in cap­i­tal in­vest­ments was painful. 29.2 per­cent of this de­cline is due to con­struc­tion and 16.9 per­cent is due to ma­chin­ery and equip­ment in­vest­ments. Es­pe­cially the de­crease in ma­chin­ery-equip­ment in­vest­ments is very wor­ry­ing in terms of fu­ture prospects. When we look at the course of this ex­pen­di­ture com­po­nent in re­cent years, we see a sig­nif­i­cant slowdown since 2011 and a sig­nif­i­cant con­trac­tion since the be­gin­ning of 2018.

Par­al­lel to the de­cline in na­tional out­put, con­sump­tion of house­holds has con­tin­ued to de­cline for the third quar­ter. Ob­vi­ously, there was an ex­pec­ta­tion that there would be some pos­i­tive in­crease in con­sump­tion in the sec­ond quar­ter due to the fact that the elec­tion cal­en­dar was be­hind in the be­gin­ning of year fore­casts. How­ever, this did not hap­pen. Although the con­trac­tion in con­sump­tion, at 1.1 per­cent, is bet­ter than the con­trac­tion of 4.8 per­cent in the first quar­ter, it is not suf­fi­cient. In the same pe­riod, gov­ern­ment spend­ing, with an in­crease of 3.3 per­cent, con­trib­uted to growth, al­beit to a lim­ited de­gree. How­ever, with the rapid and sharp de­te­ri­o­ra­tion in the bud­get, the pos­si­bil­ity of con­tin­u­ing this con­tri­bu­tion in the sec­ond half of the year seems to have dis­ap­peared. On the other hand, net for­eign trade (de­crease in im­ports + in­crease in ex­ports), which con­trib­uted to na­tional in­come by two per­cent in this pe­riod, will con­tinue its pos­i­tive con­tri­bu­tion in the sec­ond half, al­beit with a de­crease.

In­fla­tion data is bet­ter than ex­pected at 0.86 per­cent. Food prices, which have the high­est share in CPI at 23.3 per­cent, as in re­cent months, con­tinue to be a pos­i­tive sur­prise. This month, due to the base ef­fect, we ex­pe­ri­enced a 12-month in­fla­tion de­crease of 1.7 per­cent. But com­par­a­tively, the av­er­age in­fla­tion rate for the last 14 years is 0.17 per­cent, much lower than this month. This es­sen­tially in­di­cates that in­fla­tion has not yet nor­mal­ized. As a re­sult of pub­lic hikes, Septem­ber in­fla­tion will also re­main above the trend. In the mean­time, no one should have the delu­sion that the in­fla­tion rate has nor­mal­ized since 6.3 per­cent of Septem­ber 2018 in­fla­tion will come out of the series. Septem­ber in­fla­tion will be well above the 14-year av­er­age of 0.76.

Ob­vi­ously, un­der th­ese cir­cum­stances, given the gen­eral macroe­co­nomic bal­ances and global eco­nomic de­vel­op­ments, I do not think the Cen­tral Bank has as much room for in­ter­est discount as the mar­ket hopes. Yes, we will see head­line in­fla­tion de­cline in Septem­ber and in Oc­to­ber, but by the end of the year, “real” in­fla­tion is likely to re­main above 15 per­cent.

Newspapers in English

Newspapers from Turkey

© PressReader. All rights reserved.