PMI and Foreign trade in spotlight

The markets experienced much-needed relief last week due to expectations of a rapid global recovery post-coronavirus outbreak. While the TRY and other developing country currencies recovered, exchange indices continued to increase. The week ended with Turkey’s 2020 Q1 growth data. The economy’s performance was in line with the expectations due to the lack of impact of the outbreak on the economy over the first three months of the year and the positive base effect from 2019.

Q2 growth will not be as optimistic, however. The steep decline in industrial production, retail sales, and exports signal a significant slowdown in our economy in the second quarter. Two critical data for the second quarter will support this argument this week.

On Monday, the Istanbul Chamber of Industry will publish the May PMI index data. The Ministry of Trade will announce the May exports and imports data the following day. Like the rest of the world, the PMI index decreased in Turkey, bottoming out at 33.4 in April, the lowest level since the beginning of 2009. This week’s data will probably be higher than April but lower than March data. PMI indices are based on monthly changes and they are regarded as the leading indicators of industrial production and growth.

May temporary foreign trade data will also be an important indicator of what is to come. Just like PMI, foreign trade numbers are also decreasing globally due to the outbreak. Turkey’s recent foreign trade data, however, differs in two respects: First, the decrease is steeper compared to other countries. A few countries are doing worse, but by and large, others have performed better.. Second, the deterioration in Turkey’s exports shows a significant difference compared to the contraction in its imports. In April, exports and imports decreased by 41 percent and 28 percent, respectively. Because exports decreased more than imports – posing a risk to the current account deficit - the government implemented various temporary tariffs on imports. This means exports will experience a steep decline in May and the decrease in exports will once again be more than the decrease in imports.

DATA TO FOLLOW THIS WEEK:

Monday 10:00 – May PMI Index

Tuesday 10:00 – May temporary foreign trade data

Wednesday 10:00 – May CPI