Politics – Turkish Market News

Economic Update: 1Q15 GDP & April Current Account

Gross Domestic Product

Turkey GDP grew by more than expected (2.3% versus 1.6%) in the first three months of 2015, data from Turkstats showed on Wednesday. Despite the fact that the reported figure signaled a below par growth in the country, we saw the pressure on Turkish assets easing for a while following the economic data. However, a rethinking about the country’s growth regime is needed given that for the last thirteen quarters it has been posting growth numbers below historical levels.

The strongest component of GDP was consumption in 1Q15 which was up 4.5%. The positive impact of boosted consumption was offset by the decline in net exports. The below is a visualized form of contribution of each components to GDP that shows consumption in Turkey has a strong (reverse) correlation with imports (net exports). At industry level, financial services sector appeared to the best performer in 1Q15.

Current Account Balance

From Dogan News Agency:

Turkey’s current account deficit fell by $1.52 billion to $3.41 billion in April, yet exceeded the expectations of $3 billion.

The unaccredited inflow of foreign currency rose to USD 2.89 billion in the same period, more than 10 times the USD 258 million registered a month prior, rising to USD 6.98 billion in the first four months of the year.

Other important reason that limited the rise in the current account deficit in April was gold exports of USD 1.82 billion, compared to USD 307 million of net imports in the same month of last year.

The 12-month rolling deficit fell to USD 44.26 billion at the end of April, down from USD 45.78 billion at the same period of last year. Current account stood at USD 2.0 billion in January, at USD 3.2 billion in February and USD 4.96 billion in March.

Another reason was direct investment outflows involving distributed profits under primary income item increased by USD 595 million to USD 892 million in April.

Portfolio investment recorded a net inflow of USD 755 million as an increase in net liabilities. As regards to sub items through liabilities, non-residents’ equity security transactions recorded net purchases of USD 652 million, as government domestic debt securities recorded net sales of USD 1.02 billion.

The country just printed another bad current account deficit which was 5.7% of the country’s total GDP. The following chart shows the ratio by countries where Turkey is shown red.

Ultimately, macro data shows that the structural reforms are needed for the future of Turkish economy. As the country is headed to a change in politics, we may also see a shift in economic

Central Bank Independence Attacked Again

The 2001 crisis and the following the post-crisis period were important milestones for economic policy-making in Turkey as well as for the monetary policy. In 2002 Turkish Central Bank adopted a modern monetary policy with primary objective of achieving price stability after the bank had been vested with instrument independence in the previous year. Thanks to these efforts, Turkey has been able to keep the annual inflation rates in the range of 4%-12% after experiencing a hyperinflation period in 90s with 3-digit numbers. Indeed, the posted inflation figures can not be considered as favorable outcomes as they are still above the central bank’s target.

However, the independence of the central bank recently became a point to debate for politicians whom led by President Erdogan, Minister of Economy Nihat Zeybekci and Deputy Prime Minister Numan Kurtulmus who is also a Professor of Economics. Last week (on Jan 16) Mr. Erdogan reiterated his long-established criticism of Turkish Central Bank for not reducing interest rates. Following that, Mr. Zeybekci signaled a change in the law of Turkish Central Bank which organizes the management structure and sets a primary target for the bank. Many pundits attributed this to setting some other targets like growth, employment for the central bank with a law amendment would be a primary agenda item for the new government after the general elections in June 2015.

Interestingly, Turkish Central Bank is more able to cut the interest rates in the upcoming monetary policy committees due to the decline in oil prices and easing inflation rates and is expected to do so by many analysts covering Turkish economics. Therefore Erdogan’s criticism has done nothing but raised the concerns over political pressure on the central bank’s decision. Simultaneously, lira has performed remarkably weaker compared to emerging country currencies, depreciated 2.5% to 2.34 per US dollar.

Post-elections scenarios in Turkey now include a substantial change in the way the monetary policy is made that would lead unpredictable things to occur in Turkish money markets. Investors should carefully keep track of any given remarks by the politicians on the issue.

What Google Says About Elections

With two months before the Turkish local elections take place, Prime Miniter Tayyip Erdogan’s party is still, by a wide margin, the most popular with voters, as it has been since 2002. However many are qıestioning if that wide margin is getting narrower these days due to corruption allegations that has tarnished the government’s image. Polls show Erdogan’s Justice and Development Party (AKP) still leads but voting rates differs greatly in each poll. By this none can assert that these polls are accurate predictors of the results of the upcoming elections. At this stage, taking a look at Google Trends data that consist of the searched key phrases in Google.

The key phrases that I am focusing are “AKP adayı” and “CHP adayı”. CHP (Republican People’s Party) is the main opposition party which is led by Kemal Kilicdaroglu and “adayı” means “candidate” in Turkish. This is an important point because the candidates have more influence on decisions in local elections than they do in general elections.

2009 Elections

The last local elections were in March 2009, as a result I used a date filter and generate a chart for the related key phrases between October 2008 and March 2009, an here is the results.

The blue line shows the number of searchs for AKP candidates as well as the red one does for CHP. According to Wikipedia, AKP’s share was approximately 39% as CHP took %23 of the total votes. Google’s data does not seem like a bad estimator.

So What About Now

This time it is more complicated, and yes, flawlessly pictures Turkey. Not surprisingly, we will have much more backtakings in the chart as the election approaches. On the other hand, considering the average data (the ortalama bars), it is likely that the gap has not been too wide this time. Subjectively, I guess that it is AKP losing momentum, not CHP gaining.

Maybe tracking these two lines is not a useful tools to estimate the results but at least it is funny and I strongly recommend it. You can enhance the work by watching the trends in different periods or by adding nationalist MHP and pro-Kurdish-socialist HDP.