August Job Report: Confirming Weakness

The unemployment rate in Turkey rose by 1.2 percentage points y/y to 11.3% while the non-farm unemployment rate climbed to 13.7%. This August job report marked another step in deceleration pace of the economy.

turkey-nfp-and-growthPartly due to the purge following the coup attempt and struggling tourism sector, Turkey lost 614K non-agriculture job in the three-month period ended in August of which 356K came from services. In seasonally adjusted terms, total decrease was 219K (-162K from manufacturing, -113K from construction, and interesting +55K services). The report build a supportive case for a slowdown in the economy to the hilt during the 3Q.

turkey-unemployment-and-asset-qualityThe rising unemployment is likely to influence asset quality in the bank through its pressure on retail loans and credit cards. Traditionally, an unemployment rate above 12% is alarming and potentially would lead a major deterioration. Since the official figures still remain below that threshold, we can comfortably say it is groundless to be pessimistic for the time being, however, we recommend investors to keep an eye on upcoming job reports.

September Industrial Production: Stating GDP Contraction

September industrial production index was down -4.2% y/y well below the market consensus of 2.5% y/y, driving the 3-month moving average to the negative territory for the first time since the global financial crisis. Following the results analysts downgraded their 2016 GDP growth estimate to the 2.3%-2.5% from the recent 3%-3.5% as an output contraction is very likely in 3Q 2016. The Ramadan holiday negatively affected the data, however, we also saw a decline in seasonally and working-day adjusted data (-2.5% y/y, -1.5% 3MMA).

turkey-real-gdp-growth-v-industrial-production-indexAll of the main production groups have contracted in 3Q 2016. It goes with saying, manufacturing sub-index has a strong relationship with industry’s output showed a decline which account for one third of the economy. There is an off-chance that faster than expected output growth in agriculture would minimize the contraction.

turkey-manufacturing-output-growth-v-manufacturing-indexDomestic demand should also be expected to be weak.

turkey-real-domestic-consumption-v-consumer-related-industrial-productionWe expect Turkey’s real GDP to contract by %0.8 in 3Q. For 4Q 2016, some pre-indicators including loan growth, PMI, auto sales point to a strengthening but we are in early days yet.

August Industrial Production: Not Enough Dynamism

Rising by 2% y/y, industrial production index posted a subdued performance in seasonally and working-day adjusted series in August, after a decline of 4% in July.  The sub-index of manufacturing performed even worse with posting 1.4% growth after contracting by 5.4%, which is the industry accounts for more one fourth of the economy.

turkey-august-industrial-production3-month moving average figures are stilt negative territory, suggesting a weaker GDP growth in 3Q. We need to see robust growth in September’s IP data, which is scheduled to be announced on November 8, to be convinced that the slowdown in 3Q could be milder than expected.