Q4 2016 GDP Preview: Recovering but Subdued

Q4 2016 GDP data will be posted this Friday, probably mark a recovery from Q3 when a negative figure was recorded as the consensus estimates signal a 1.9% annual change in GDP, corresponding to 2.2% growth for FY 2016.

We believe that Q4 GDP growth is likely to exceed estimations as we see strong exports and government spending building a supportive case for the economic activity. That said, subdued growth will still be the overriding theme as pre-indicators suggest a weaker economy during Q1 2017.

Industrial production and capital good production indicators are in favor of a growth rate remaining at positive territory for the final quarter of 2016.

We also see export orders being constructive

As auto producers enjoyed a recovery in Europe, and the competition advantage that the currency depreciation brought which,

however, have had a negative impact on consumers.

Capacity Utilization Drops in November

Capacity utilization rate (CUR) was realized at 75.6% in November. It means an increase 160 basis points compared to last year but a slight decline month over month by 80 basis points. Seasonally adjusted CUR also dropped to 74.9% by 90 basis points.

Looking at the figures from a broader perspective, the CUR had hanged around 80% in the pre-crisis period of 2008, then following the collapse of Lehman, it dramatically plummeted to 60% as a result of the global recession. Despite the worthy of note improvements, it is still lower than pre-crisis period but also this suggests that Turkey can increase production without causing a rapid upside change in inflation.

Turkey - Capacity Utilization Rate

Business confidence stayed above 100 but demonstrated a slight decline in November. Even if the volume of output supportively remains the same, the significant fall in export orders had been the key factor. Ahead of elections, I clearly do not see macro sign to boost the investment.

Beside of decreasing export orders, the trend line in stocks in process does not seem pretty. We have an upward move in November data but the stable outlook is sign of the weakness of consumption. However, by this, a limited weakness in inflation is expected in the next months depending upon the output gap.

Turkey - Real Sector Confidence Index

Turkey - Stock in Process