Despite relentless inflation eroding wages and salaries and general pessimism about AKP’s ability to steer the economy out of its current doldrums, as manifested by a multitude political polls, Turkish consumer seem in the mood to spend more, according to two new indices. Turkstat’s and broadcaster BloombergHT’ s consumer confidence indices scaled new highs in December data. While positive consumer sentiment is a strong driver of economic growth, the new figures ought to cause Central Bank think twice about cutting rates in next Thursday’s last MPC meeting of the year.
Consumer confidence index reached its highest level in the last 1.5 years.
The consumer confidence index, calculated from the results of the consumer trend survey conducted in cooperation with the Turkish Statistical Institute and the Central Bank of the Republic of Turkey, increased by 1.9% in December, reaching 81.3, while it was 79.8 in November.
Thus, the highest figure was reached after the level of 85.1 seen in June 2023.
Bloomberg HT Consumer Confidence Preliminary Index increased by 5.32 percent in the first half of December compared to the final index of the previous month and reached 75.82.
An improvement is observed in both the consumer’s perception of the current situation, their expectations for the next 12 months, and their consumption tendency.
ANALYSIS
It is such a striking contrast to see consumer confidence recover towards the end of the year, despite CPI at 45%, and many political polls reporting participants’ primary concern remains economic hardship.
There are several reasons behind the recovery. First, inflation as felt by the shoppers may indeed be falling in line with Turkstat data, which many experts claim understates actual inflation. The second reason could be the expectation of generous turn-of-the year hikes to minimum wages, civil service salaries and pensions. Finally, we may be witnessing the impact of close to a million addition to payrolls in the year through November. The rise in the consumer sentiment is reflected in house sales, which rose to multi-year heights in November data, reaching 1.25 million units YoY.
It seems that the economy will recover moderately in 4Q2024 after a two-quarter very shallow recession. While positive consumer sentiment is good news, it is very likely to spill into inflation after new year wage and salary hikes, because the supply side of the economy has not recovered in 4Q2024 as much as consumer sentiment, though as measured by ISO and SAMEKS PMI’s the decline in production has slowed down in October and November.
Contrary to the models provided by Central Bank, there may very little slack in the economy, in which case the much-anticipated December rate cut would be too premature. The CB’s monthly survey of Market Participants foresaw the first rate cut in December of 150 basis points.
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