Cover chart: Seasonally adjusted 3-mth and 12-mth moving average IP in Turkish
According to a research note by Yatirim Finansman Investment House, August, IP increased by 3.4% MoM and 10.4% on a YoY.
According to the consensus, the second IP data set for 3Q20 was expected to increase by 6.1% YoY (YF: +7.7% YoY, Prior: -3.9%). On the other hand, unadjusted IP increased by 16% YoY. On a monthly basis, all main industrial groups continued to record increases except durable goods.
The ongoing monthly recovery on the intermediate (+4.8% MoM, MoM contr.:+2.1pps) and capital goods (+3.7% MoM, MoM contr.:+0.7pps), which are important indicators for the sustainability of the medium term economic growth outlook, deserved attention.
Manufacturing sector recorded increases of 3.6% MoM and 11.4% of YoY. The highest positive contributions to the MoM increase, which was led by the manufacturing sector (MoM contr.:+3.2pps), came from the manufacture of motor vehicles (MoM contr.: +0.8pps), textiles (MoM contr.: +0.6pps) and food products (MoM contr.: +0.6pps), while the highest negative contributions came from manufacture of computer, electronic and optical products (MoM contr.: -0.4pps), repair and installations of machinery and equipment (MoM contr.: -0.3pps) and other manufacturing (MoM contr.: -0.1pps).
Leading indicators signs a “V” shaped recovery in Q3
The first two IP data set for Q3, which is one of the most important leading indicator of the economic growth, were positive. Accordingly, 3-month moving average SA figures indicate 23.6% QoQ growth whereas 3-month moving average unadjusted and calendar adjusted data increased by 10.1% YoY and 10.4% YoY, respectively. High-frequency data (like electricity consumption and credit card expenditures) also signs that a positive YoY economic growth possible in Q3 despite the diminishing momentum at the end of the quarter.
However, we should also note that the strong loan growth trend has started to normalize in late Q3 after the liquidity tightening actions of the policy makers. Hence, we could say that the YoY economic growth of Q3 could be close to 0% and/or could be at the positive side in the light of the preliminary indicators.
On the other hand, we should recall that the sustainability of the potential recovery is still highly dependent on whether there will be a second wave of the pandemic or not. The third and last IP data set (September) for 3Q20 will be announced on November 13.
Demand side indicators lag production
According to data release on Tuesday, by official stats agency Turkstat:
Retail sales volume with constant prices (2015=100) increased by 5.8% in August 2020 compared with the same month of previous year. In the same month food, drinks and tobacco sales increased by 5.2%, non-food (except automotive fuel) sales increased by 7.2%, automotive fuel sales increased by 3.3%.
However, the monthly progress lost visible pace, as “Retail sales volume with constant prices increased by 1.4% in August 2020 compared with the previous month. In the same month non-food (except automotive fuel) sales increased by 4.5%, automotive fuel sales increased by 1.0%, food, drinks and tobacco sales decreased by 3.7%”.
The August results are a symptom of Turkey’s runaway credit growth, which creates artificial demand for high-price items which are sold on instalment basis. On the other hand, the decline in food, tobacco and drinks augur ill for poverty in the nation. In July, seasonally adjusted unemployment remained at 13.4% flat vs the June survey, but the “broad unemployment” stat, which covered discouraged workers and those on state-paid furlough reached nearly 30%.
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