turkey: economic outlook bbva research · turkey: economic outlook - october 2019 2 main messages...

Turkey:

Economic Outlook

October 2019

BBVA Research

2 Turkey: Economic Outlook - October 2019

Main messages

The prospects for a

slowdown of world

economic growth

have been

reinforced, in a

context of rising

uncertainty. Global

growth will decline

from 3.7% in 2018 to

3.2% in 2019 and

3.1% in 2020.

Turkey´s economic

recovery is gaining

momentum and will

accelerate in the

second half of the

year. We expect a

0.3% GDP growth

this year and 3.0% in

2020. Inflation is

decreasing faster and

we expect 12.5% at

the end of this year.

Economic policies will

be supportive as the

Central Bank

immersed in the

easing cycle and the

New Economic

Program envisaged a

neutral fiscal policy.

Complacency should

be ruled out as looser

policies could entail

some risks.

Global and Regional

Geopolitical

uncertainty are still

present. We maintain

prudent exchange rate

forecasts as

uncertainties stemming

from global markets,

the trade war and the

local geopolitical

situation pose some

risks.

Global environment:

slowdown and

uncertainty

01


Global growth continued to weaken

WORLD GDP GROWTH (FORECASTS BASED ON BBVA-GAIN % QOQ)

Source: BBVA Research

Recent evidence confirms that

uncertainty and protectionism are

negatively affecting growth.

The ongoing growth slowdown has been

sharper than expected, especially in

China and Europe.

Exports and the manufacturing sector

remain particularly weak…

... and there are signs that this weakness

is beginning to affect the service sector. 0.4

0.6

0.8

1.0

1.2

Sep-1

3

Ma

r-1

4

Sep-1

4

Ma

r-1

5

Sep-1

5

Ma

r-1

6

Sep-1

6

Ma

r-1

7

Sep-1

7

Ma

r-1

8

Sep-1

8

Ma

r-1

9

Sep-1

9

2011-2019 average


Uncertainty has increased sharply in August

and remains high despite the recent moderation

ECONOMIC UNCERTAINTY INDEX (TONE OF THE NEWS ON ECONOMIC UNCERTAINTY

WEIGHTED BY COVERAGE, 15-DAY MOVING AVERAGE)

Source: BBVA Research and GDELT

High uncertainty due to:

• trade and technological tensions

• Brexit

• Political and geopolitical turbulences

The impact on confidence adds to the

effects of the structural slowdown in

China and the cyclical moderation of

the US economy.

0.03

0.04

0.05

0.06

0.07

Jan-1

7

Ma

r-1

7

Ma

y-1

7

Jul-1

7

Sep-1

7

No

v-1

7

Jan-1

8

Ma

r-1

8

Ma

y-1

8

Jul-1

8

Sep-1

8

No

v-1

8

Jan-1

9

Ma

r-1

9

Ma

y-1

9

Jul-1

9

Sep-1

9


0

10

20

30

40

50

60

70

80

90

100

Jan-18 Feb-18 Apr-18 Jun-18 Aug-18 Sep-18 Nov-18 Jan-19 Feb-19 Apr-19 Jun-19 Aug-19 Sep-19

The new protectionist measures have fueled trade tensions

TRADE WAR INDEX: WORLDWIDE GOOGLE SEARCHES ABOUT THE TOPIC “TRADE WAR” (INDEX: 0 TO 100)

(*) And till Dec-19: a further 5% tariff (to 20% from 25% on USD250bn and 15% on the rest of Chinese imports. (**) An till Dec-19: extra tariffs (5%-10%) on $46bn of other US imports.

Source: BBVA Research and GDELT

Tariffs on steel

and aluminum.

Tariffs on

$3bn US

imports.

Tariffs on $50bn

Chinese imports.

Tariffs on $50bn

US imports.

10% tariffs on $60bn

US imports.


Chinese imports.


Chinese imports.

Up to 25% tariffs on

$60bn US imports.

Extra tariffs (5%-10%)

on $29bn of other US

imports. (**)

15% on $112bn of other

Chinese imports. (*)


In financial markets, the flight-to-safety mood

continues to prevail

SOVEREIGN DEBT YIELDS (%)

Source: BBVA Research, Bloomberg

-0.75

-0.50

-0.25

0.00

0.25

0.50

0.75

1.00

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Jan-1

6

Apr-

16

Jul-1

6

Oct-

16

Jan-1

7

Apr-

17

Jul-1

7

Oct-

17

Jan-1

8

Apr-

18

Jul-1

8

Oct-

18

Jan-1

9

Apr-

19

Jul-1

9

Oct-

19

10-year US bonds (lhs) 10-year German Bonds (lhs)


Counter-cyclical policies will help to keep financial tensions

under control, but will not prevent a global slowdown

COUNTERCYCLICAL POLICIES

US – China tensions will remain in place:

A partial trade agreement between both countries

is likely.

Tariffs will hardly return to the levels exhibited a

few months ago.

Structural and technological issues will continue

to generate turbulence.

The Brexit issue, as well as political and geopolitical

tensions in certain regions, will continue to fuel

uncertainty.

Monetary policy:

Will continue to lead

countercyclical

actions…

… despite its lower

effectiveness in the

actual context.

More measures will

be announced

moving forward.

A global

coordination of

policies is now

less likely.

Fiscal policy:

Should play a

bigger role…

… but political

issues and high

debt will limit its

use.

More measures in

Europe and mainly

in China.

GLOBAL UNCERTAINTY


The central banks have announced further monetary

stimuli in the last few months

(*) In the case of the ECB, deposits interest rates.


FED AND ECB: INTEREST RATES (*)

(%, END OF PERIOD)

Fed: a 50bps reduction in rates in recent

months and at least an additional 25bps cut

in October.

ECB: an aggressive monetary package

• a 10bps cut in deposit rates

• a two-tiered system for bank deposits

• a new quantitative easing program

• a more favorable TLTRO-III

In Europe, another 10bps cut in deposit

rates is likely.

China and other emerging countries: more

aggressive reduction in interest rates.

-0.7

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Jan-1

5

Ma

y-15

Sep

-15

Jan-1

6

Ma

y-16

Sep

-16

Jan-1

7

Ma

y-17

Sep

-17

Jan-1

8

Ma

y-18

Sep

-18

Jan-1

9

Ma

y-19

Sep

-19

Jan-2

0

Ma

y-20

Sep

-20

FED (lhs) ECB (rhs)


Downward revision

Unchanged forecast

Upward revision

A sharper slowdown of the world economy

(*) Non available as we have not yet a definitive forecast for Argentina.


USA World Mexico Latam Eurozone Turkey China

2019 2.3

2020 1.8

0.2

1.3 N.A.(*)

0.7

0.8

1.1

3.0

0.3 6.0

5.6

3.2

3.1

Spain

1.6

1.9


IMPACT ON GDP OF THE PROTECTIONISM (IMPACT ACCUMLATED IN TWO YEARS, PP)

(*) Direct and indirect impact. Protectionism measures announced before Aug-19: US: 25% tariff

increase on steel, 10% on aluminum, 25% on $250bn China imports. China: 25% on USD110bn US

imports Protectionism measures announced from Aug-19 on (to be implemented, in case of no

trade agreement, till Dec-19): US: a 5% extra tariff on $250bn and 15% on $300bn China imports.

China: extra tariffs (5%-10%) on $75bn US imports.


The revisions in GDP forecasts are broadly

in line with the estimated impact of adopted

protectionism measures.

Specially in China, the impact has been

smoothed by countercyclical policies.

In the Eurozone the deterioration has been

even larger thanks to lower export to the

United Kingdom (Brexit) and problems in

the automobile sector.

Risks: if the US and China don’t reach

a trade agreement and the protectionist

escalation continues, there would be

an additional negative effect on

the global economy.

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

World China USA Eurozone

Impact of protecionism measures anounced from Aug-19 onwardsImpact of protecionism measures announced before Aug-19

This sharper slowdown is to some extent related

to persistent protectionist tensions


Oil: prospects for weaker growth pressure

prices downwards

OIL PRICES (US DOLLARS PER BARREL, ANNUAL AVERAGE)

2016

44

2017

54

2018

71

2019 (f)

64 61

2020 (f)

55 54

Slight upward revision of short-term

forecasts and risk that an escalation of

tensions in the Middle East will end up

driving oil prices up.

In any case, prospects for price moderation

going forward are maintained, given the

relative strength of supply in an

environment of lower demand.

Actual Previous

(f) Forecast.



Global risks continue to increase, mainly due

to tensions between China and the US

Economic recession: higher

Protectionism: high

Recession: higher

• Brexit, Italy

Protectionism: still contained but increasing

Protectionism: high

Disorderly deleveraging: higher

Geopolitical tensions

The risk of geopolitical turbulence in the Middle East has also increased.

Financial vulnerabilities can amplify the severity of risks.


Pro

babili

ty

Severity

EE. UU.

EZ

CHN

Turkey

Economic

Outlook

02


The Turkish economic rebalancing is being remarkable…

1Q18

+7.2%

4Q19

+5.0% 1Q18

10%

3Q18

25.5%

3Q19

9.2%

4Q19

+12.5%

1Q18

-4.5%

2Q18

-6.5%

3Q19

+0.7%

A “V” shape

Economic recovery…

With rapid

Disinflation…

.. Sharp correction

of CAC deficit

2Q19

-1.5%

4Q19

-0.5%


The “V” shape recovery is in line with our expectations, leading us

to maintain our GDP forecast at 0.3% in 2019 with upside risks

TURKEY: ACTIVITY INDICATORS (%YOY, 3M MOVING AVG.)

TURKEY: BBVA-GB GDP MONTHLY INDICATOR (% YOY, 3M MOVING AVG.)

Source: BBVA Research Turkey

Mean Feb Mar Apr May Jun Jul Aug Sep

Industrial Production 6.7 -7.6 -5.6 -3.5 -1.9 -3.3 -3.0

Non-metal Mineral Production 5.4 -22.6 -19.4 -19.0 -18.0 -19.5 -18.8

Electricity Production 4.3 -1.2 -1.5 -0.5 0.7 1.3 -0.3 -1.6 -1.6

Auto Sales 2.1 -46.9 -44.9 -46.5 -49.0 -45.5 -47.1 -37.3 0.0

Tourist Arriv als 6.4 10.0 6.1 13.8 12.7 16.6 15.2 17.2

Number of Employ ed 3.4 -2.7 -2.8 -2.7 -2.8 -2.8

Number of Unemploy ed 3.9 36.3 39.8 39.6 36.8 32.2

Auto Imports 3.8 -48.4 -49.9 -52.6 -56.3 -53.6 -55.0 -47.4

Auto Exports 8.1 -7.1 -7.0 -9.3 -6.9 -8.2 -6.8 -3.7

Retail Sales 5.3 -7.0 -5.3 -5.0 -4.3 -3.9 -3.2 -1.7 1.9

Manuf acturing PMI 50.9 46.4 47.2 46.8 45.3 47.9 46.7 48.0 50.0

Total Loans growth 13-week 17.7 2.6 18.1 20.8 12.2 0.4 3.9 2.0 9.3

Real Sector Conf idence 105.7 97.2 102.1 105.5 98.9 102.5 98.3 102.5 98.8

MICA Forecast -0.9% 0.2% 3.0%

GDP YoY -2.4% -1.5%

BoomContraction Slow-down Growth

2019

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

De

c-1

6

Feb

-17

Apr-

17

Jun-1

7

Aug-1

7

Oct-

17

De

c-1

7

Feb

-18

Apr-

18

Jun-1

8

Aug-1

8

Oct-

18

De

c-1

8

Feb

-19

Apr-

19

Jun-1

9

Aug-1

9

Oct-

19

De

c-1

9

GDP Growth

BBVA-GB GDP Growth (Monthly)

GDP growth nowcast

August:+ 0.2% (52% of inf.)

September:+1.5% (32% of inf.)


-20%

-10%

0%

10%

20%

30%

40%

-9%

-6%

-3%

0%

3%

6%

9%

12%

15%

18%

De

c-1

7

Jan-1

8

Feb

-18

Ma

r-1

8

Apr-

18

Ma

y-1

8

Jun-1

8

Jul-1

8

Aug-1

8

Sep-1

8

Oct-

18

No

v-1

8

De

c-1

8

Jan-1

9

Feb

-19

Ma

r-1

9

Apr-

19

Ma

y-1

9

Jun-1

9

Jul-1

9

Aug-1

9

Sep-1

9

Oct-

19

No

v-1

9

De

c-1

9

Industrial ProductionElectricity ProductionGaranti BBVA Big Data Retail Sales IndexGaranti BBVA Big Data Retail Sales Cash Intensity AdjustedGaranti BBVA Big Data Maquinery Investment (Right)

The high frequency data, our own Big Data indicators and surveys

support the idea that the economic recovery is gaining momentum

TURKEY: CONFIDENCE “SOFT” DATA INDICATORS (YEAR CHANGE.)

Somehow supported by strong

recovery showed in Confidence

Or Soft Indicators

TURKEY: HARD & BBVA BIG DATA ACTIVITY INDEXES (%YOY, 3M MOVING AVG.)

Source: CBRT, TURKSTAT, BBVA Research Turkey

Our Big-Data

Indicators signal

that the recovery

is ongoing

& we are near to

see

the first official

“Green-Shoots”.

-35

-25

-15

-5

5

15

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

Dec-1

7

Jan

-18

Fe

b-1

8

Ma

r-1

8

Ap

r-18

Ma

y-1

8

Jun

-18

Jul-

18

Au

g-1

8

Se

p-1

8

Oct-

18

Nov-1

8

Dec-1

8

Jan

-19

Fe

b-1

9

Ma

r-1

9

Ap

r-19

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oct-

19

Nov-1

9

Dec-1

9

Purchasing Manager Index Economic Confidence Index

Construction Confidence (Right) Service Confidence



-0.40

-0.20

0.00

0.20

0.40

0.60

0.80

9

10

11

12

13

14

15

Dec-1

5

Fe

b-1

6

Ap

r-16

Jun

-16

Au

g-1

6

Oct-

16

Dec-1

6

Fe

b-1

7

Ap

r-17

Jun

-17

Au

g-1

7

Oct-

17

Dec-1

7

Fe

b-1

8

Ap

r-18

Jun

-18

Au

g-1

8

Oct-

18

Dec-1

8

Fe

b-1

9

Ap

r-19

Jun

-19

Au

g-1

9

Oct-

19

Dec-1

9

Unemployment Rate (SA, %)Nowcasting Activity + Google Searches

The economic recovery is passing-thru to the labor market which

starts to show some stabilization in the cyclical sectors…

TURKEY: UNEMPLOYMENT RATE & BBVA NOWCAST (SA, % & BBVA Data-Google Searches Nowcast)

TUNEMPLOYMENT RATE CHANGES

TURKEY: EMPLOYMENT GROWTH BY SECTOR (3MA YOY)

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

De

c-1

5

Ma

r-1

6

Jun-1

6

Sep-1

6

De

c-1

6

Ma

r-1

7

Jun-1

7

Sep-1

7

De

c-1

7

Ma

r-1

8

Jun-1

8

Sep-1

8

De

c-1

8

Ma

r-1

9

Jun-1

9

Sep-1

9

De

c-1

9

Industry Service Total Construction (rhs)


The Banking Sector adjustment has been sizeable…

BIS CREDIT GAP: EM BIS COUNTRIES VS TURKEY (% DEVIATION FROM TREND)

TURKEY: LOAN TO DEPOSIT RATIO (%)

100%

105%

110%

115%

120%

125%

De

c-1

5

Ma

r-1

6

Jun

-16

Se

p-1

6

De

c-1

6

Ma

r-1

7

Jun

-17

Se

p-1

7

De

c-1

7

Ma

r-1

8

Jun

-18

Se

p-1

8

De

c-1

8

Ma

r-1

9

Jun

-19

Se

p-1

9

De

c-1

9

Source: Garanti BBVA Research


-4%-2%1%4%6%9%

11%14%16%19%21%24%26%29%31%34%

Sep-1

5

Jan-1

6

Ma

y-1

6

Sep-1

6

Jan-1

7

Ma

y-1

7

Sep-1

7

Jan-1

8

Ma

y-1

8

Sep-1

8

Jan-1

9

Ma

y-1

9

Sep-1

9

Core Food Energy

TURKEY: INFLATION SUB-COMPONENTS (YOY)


TURKEY: CPI AND CORE INFLATION PROJECTIONS (YOY)

6%

8%

10%

12%

14%

16%

18%

20%

22%

24%

26%

De

c-1

6

Feb

-17

Apr-

17

Jun-1

7

Aug-1

7

Oct-

17

De

c-1

7

Feb

-18

Apr-

18

Jun-1

8

Aug-1

8

Oct-

18

De

c-1

8

Feb

-19

Apr-

19

Jun-1

9

Aug-1

9

Oct-

19

De

c-1

9

Core CPI

Oct 18 :25.3%

The “disinflation” is being faster than expected thanks to the tight

monetary policy and food/energy prices normalization…

Oct 19 :8.5%


7

9

11

13

15

17

19

21

23

25

Feb

-18

Apr-

18

Jun-1

8

Aug-1

8

Oct-

18

De

c-1

8

Feb

-19

Apr-

19

Jun-1

9

Aug-1

9

Oct-

19

De

c-1

9

Feb

-20

Apr-

20

Jun-2

0

Aug-2

0

Oct-

20

De

c-2

0

CBRT Average Funding Rate

Source: CBRT and BBVA Research Turkey (MPM) Model

BBVA NK-SOE MODEL INTEREST RATE PROJECTIONS (PROJECTIONS STICKING TO THE MTP INFLATION PATH)

Source: CBRT and TURKSTAT

TURKEY:OFFICIAL INTEREST RATES (%)

The Central Bank started the “easing cycle” with bold cuts. We expect

more rate cuts to fine tune but “excess easing” should be avoided

7

9

11

13

15

17

19

21

23

25

27

Sep-1

6

No

v-1

6

Jan-1

7

Ma

r-1

7

Ma

y-1

7

Jul-1

7

Sep-1

7

No

v-1

7

Jan-1

8

Ma

r-1

8

Ma

y-1

8

Jul-1

8

Sep-1

8

No

v-1

8

Jan-1

9

Ma

r-1

9

Ma

y-1

9

Jul-1

9

Sep-1

9CBRT One-Week Repo CBRT LLWCBRT Funding Cost


The Fiscal Policy in the MTP is neutral but if the ambitious 5% GDP

growth targets are missed, fiscal accounts could surpass safe levels

TURKEY: CG BUDGET BALANCE AND NEP FORECASTS (% OF GDP)

TURKEY CENTRAL GOVERNMENT BUDGET BALANCE (% GDP)

Government New Forecasts BBVA Forecasts

-3.3%

-2.8%

-2.3%

-1.8%

-1.3%

-0.8%

-0.3%

0.2%

0.7%

1.2%

1.7%

De

c-1

2

De

c-1

3

De

c-1

4

De

c-1

5

De

c-1

6

De

c-1

7

De

c-1

8

De

c-1

9

De

c-2

0

De

c-2

1

De

c-2

2Budget Balance Primary Balance

-3.2

-2.7

-2.2

-1.7

-1.2

-0.7

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

Central Government Budget Balance

Cyclically adjusted balance

Source: MTP and BBVA Research Turkey


The credit de-leveraging has supported a rapid cyclical current

account adjustment but the structural level remains on negative

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Growth & Investment DemographyFiscal Balance Financial FactorsTrade & Other Factors Oil BalanceStructural

TURKEY: STRUCTURAL CAC BALANCE

DECOMPOSITION (% GDP)

TURKEY: CAC BALANCE DECOMPOSITION (% GDP)

-10%

-8%

-6%

-4%

-2%

0%

2%-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

De

c-0

8Jun-0

9D

ec-0

9Jun-1

0D

ec-1

0Jun-1

1D

ec-1

1Jun-1

2D

ec-1

2Jun-1

3D

ec-1

3Jun-1

4D

ec-1

4Jun-1

5D

ec-1

5Jun-1

6D

ec-1

6Jun-1

7D

ec-1

7Jun-1

8D

ec-1

8Jun-1

9D

ec-1

9

FX Adj Credit Growth(yoy, inverted and forwarded 4M)-Left

Current Account Deficit/GDP

* Financial factors: Low Private Saving Ratio


Turkey

Economic

Forecasts

03


Turkey : Baseline Scenario

2018 2019 2020 (f) 2021 (f) 2022 (f)

GDP (%) 2.6 0.3 3.0 4.5 4.5

Unemployment Rate (% avg.) 11.0 14.0 13.0 11.5 10.5

CBRT funding rate (% eop, yoy) 24.0 15.5 12.0 11.0 9.50

Inflation rate (% eop) 20.3 12.5 9.0 8.0 7.2

Inflation (% avg.) 16.3 15.3 11.0 9.1 7.6

Exchange Rate (USDTRY, eop) 5.3 6.0 6.4 6.7 7.0

Exchange Rate (EURTRY, eop) 6.0 6.6 7.5 8.2 9.0

Current Account Balance (% GDP) -3.5 -0.5 -2.0 -3.0 -3.7

CG Budget Balance (% GDP) -2.0 -2.8 -3.2 -2.9 -2.6

(f) Forecast.

October 2019

Turkey:

Economic Outlook

BBVA Research

turkey: economic outlook bbva research · turkey: economic outlook - october 2019 2 main messages...

Documents