After a very rapid first quarter, when QoQ GDP growth reached %2.4, April industrial production and retail sales data revealed unmistakable signs of spending fatigue and troubles on the production side potentially caused by delayed effects of higher loan rates.
Regarding April industrial production data, Akbank Research commented:
“The Industrial Production Index (IPI) decreased by 4.9% on a monthly basis in April, and contracted by 3.4% on an annual basis. In April, industrial production was negatively affected by i) 1 day less work compared to April last year, ii) sharp declines in sectors with historically high volatility, and iii) bridge days formed by combining the Ramadan Feast (10-12 April) and April 23 Feast holidays with the weekend (5 business days were lost). While the first effect limits annual industrial production by 3 points, we estimate the total impact of the second and third effects on monthly change to be in the range of 4-4.5 points.
Therefore, we estimate the monthly decline in the IPI’s underlying trend in the range of 0.5%-1.0%. This value reveals a picture that is more compatible with the slowdown implied by data for the manufacturing industry such as May ISO-S&P Global PMI.
We expect the moderate weakening in the main trend to continue in May. However, it is very likely that we will see a monthly increase due to the technical recovery caused by the bridge day. Evaluating April and May next month together will be a more useful approach in terms of understanding the course of industrial production and the sectoral composition of the slowdown in the main trend”.
The decline in retail sales is more concrete:
Following March, a monthly decrease was recorded in retail sales in April. On an annual basis, the slowest increase in retail sales in 1.5 years was observed.
“The downward momentum in retail sales, which had presented a resilient outlook despite monetary tightening as demand was brought forward in the first quarter of the year, is deepening” stated BloombergHT.com, a Turkish financial news site.
In May, the Economic Confidence Index, a composite measure of consumer and business spending surveys, treaded water, hinting at economic activity stabilizing at a fast pace. Central Bank’s struggle against soaring inflation requires rapid deceleration in domestic demand because along with unmoored inflation expectations, it is the leading cause of price pressures.
Turkey’s highly volatile inflation is expected to decline by a whopping 25 percentage points by the end of September thanks to strong base effects. Yet, making further progress will depend on maintaining a strong exchange rate without CB intervention and finding ways of boosting the credibility of the austerity program to eliminate inflation expectations ahead of January 2025, when double-digit pension and minimum wage hikes are scheduled to take effect.
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