No surprise: GDP of Turkey increased by 15.6% q/q in 3Q2020

Gross Domestic Product (GDP) of Turkey increased by 6.7% in the third quarter of the year 2020 (3Q2020) compared to the same quarter of the previous year according to the unadjusted terms. In 2Q2020 when the Covid-19 was declared as pandemic by WHO, GDP contracted by 11% compared to previous quarter (q/q) and 9.9% compared to the same quarter of the previous year (y/y) due to the Covid-19 based tight restrictions.

In seasonally and calendar-based adjustments GDP expanded by 15.6% q/q in 3Q2020 while the year-on-year expansion realized as 6.5% in calendar adjusted figures. Before the announcement, CEFIS of Bilgi University forecasted q/q expansion of 15.85%.

In the graph below, orange colored bars show q/q percentage changes in seasonally and calendar adjusted production-modelled-GDP figures while blue bars represent the y/y percentage changes in the calendar adjusted figures.

Source: TUIK

In the graph above, we can see that 31.1% q/q increase in the industrial sector and 33.4% q/q increase in the services sector were the main drivers of the q/q GDP growth in 3Q2020. Taxes less subsidies on products expanded 8.7% q/q in 3Q2020. Worth to remind that tax delaying in 2nd quarter to the 3rd quarter influences aforementioned revenue increase.

On the other hand, the graph below shows the quarterly changes in consumption which supports production. The orange colored bars show the quarterly changes in calendar and seasonally adjusted consumption-based GDP components while blue bars show yearly changes in calendar adjusted GDP components.

Source: TUIK

In the graph above, we understand that a 30.1% q/q increase of exports of goods and services in 3Q2020 supported both industrial and services sectors on the production side. Moreover, we see that a 27.6% quarterly increase in imports of goods and services supported the exports of goods and services in 3Q2020. Because we all know that Turkey’s industrial production depends mostly on imports of intermediate goods. Furthermore, gross fixed capital formation rising by 20.8% q/q in 3Q2020 shows the rise in investment expenditures to meet the demand and increase the stocks.

The leading indicators regarding 4Q2020 comprising the period of October-November-December (exports, real sector confidence index, capacity utilization of manufacturing sector, manufacturing sector PMI) signal that;

. the industrial sector supports the industrial sector as well as GDP growth in the period of October-November, and

. the services sector (sectoral confidence indices, SAMEKS indices, tourism) puts downward pressure on GDP growth compared to 3Q2020 due to the latest engaged COVID-19 related restrictions.

Fulya Gürbüz, Ph.D.

Next week’s agenda: Confidence indices, capacity utilization, Fed’s policy rate decision, inflation report, foreign trade, and tourism

July 27, 2020, Monday

July manufacturing sector capacity utilization rate (CUR), real sector confidence index (RSCI) and sectoral confidence indices will be released. Following easing of COVID-19-led-closures in May, all these macro-economic indicators started to rise in May and got momentum further in June. A hint regarding July figures came with the IHS Markit PMI flash figures of Turkey’s main trade partner Eurozone. Flash Eurozone manufacturing PMI figures rose by 3,7 points to 51,1 in July compared to previous month. Figures above 50 indicate growth in the sector.  From the perspective of the supply chain, this may be a sign for a possible improvement in Turkey industrial production in July.  We will focus on relevant hints in CUR and RSCI figures to be released on Monday. Sectoral confidence indices, on the other hand, will help us understand the course of domestic demand.

July 29, 2020, Wednesday

Fed will release its policy rate decision. The target rate, which is the policy rate, is at the range of 0-0.25 percent since March 15, the date coronavirus declared pandemic. Fed is expected to hold the policy rate unchanged in July FMOC meeting. There are two developments supporting this expectation. Firstly, the Beige Book published on July 15, pointed to improvement in economic activity with a lower performance compared to the period before Covid-19, lower wages despite decrease in unemployment, and roughly flat input and selling prices. Secondly, the latest speech made by Fed governors in July belongs to Lael Brainard. Brainard stated that downside risks are maintained, the second wave of COVID-19 would further increase uncertainties, and financial and monetary support remain important. Lastly, Fed expanded loan facilities in July to revive economic activity and maintain financial support.

Central Bank of Turkey (CBT) will release second quarter Inflation Report. CBT decreased its inflation projection for the end of 2020 from 8.2% to 7.4% and kept its inflation projections for both 2021 and medium term at 5.4% and 5% respectively in its first quarter Inflation Report. Furthermore, CBT hold its policy rate at 8.25% at monetary policy committee meeting on July 23, stressing on upward risks regarding its year end inflation projections (pandemic-related rise in unit costs leading to an increase in the trends of core inflation indicators, and food inflation). We will focus on inflation and economic projections of CBT in 2Q20 Inflation Report. 

SAMEKS (purchasing managers indices) figures for July will be released. SAMEKS is one of the main indicators showing the tendency in both industrial and services sectors. SAMEKS Composite Index rose by 3.5 points m/m to 49.3, SAMEKS Services Sector Index rose by 2.1 points m/m to 46.3, and SAMEKS Industrial Sector Index rose by 7.0 points m/m to 56.7 in June. Levels above 50 points to growth in the sector compared to the previous month.

Tourism figures for June will be released. The sector has been contracting since March 2020 when Covid-19 burst.

Foreign trade figures of June will be released. Both exports and imports increased by 12% and 13% m/m respectively in May. According to Turkish Exporters Assembly (TİM) exports rose by 35% m/m to 13,5 billion dollars in June. Furthermore, according to central government budget figures of June pointed out a robust growth in gold excluded import figures.

July 30, 2020, Thursday

Economic Confidence Index for July to be released. The index rose by 11.8 points m/m to 73.5 in June. Being one of the parameters of Economic Confidence Index, TUİK Consumer Confidence Index fell by 1.8 points to 61.0 in July. In calculation of the Economic Confidence Index, the following parameters are considered: Consumer Confidence Index, Real Sector Confidence Index, and Sectoral (Services Sector, Retail Trade Sector, and Construction Sector) Confidence Indices. Historically, the Economic Confidence Index has a high correlation with the Services Sector Confidence Index and moves in parallel with both the Real Sector Confidence Index and the Retail Trade Sector Confidence Index. Therefore, the confidence indices to be released on Monday will help us to understand the course of the Economic Confidence Index in July.

Fulya Gürbüz, Ph.D.

Turkish Exporters Assembly: Exports increased by 7.6% m/m in May

According to Turkish Exporters Assembly (TİM), exports increased by 7.6% to 9 billion dollars in May compared to the previous month but fell by 42% year-on-year. 12-month rolling total exports fell to 152.4 billion US dollars in May due to the Covid-19 related weakness. Historical peak of 167.2 billion US dollars was recorded in February 2020.

A considerable monthly improvement in exports is not a surprise since manufacturing PMI figures of Turkey’s main exports market, Europe, exposed a slight improvement in May following a solid decline in April.

On a sectoral base, exports of industrial goods increased by 19% to 5.4 billion US dollars in May compared to the previous month. Exports of automotive industrial goods doubled on monthly basis to 1,2 billion US dollars. Besides, exports of clothing and apparel goods increased by 46% to 0,8 billion US dollars. On the other hand, export figures of iron and steel products, which are third largest industrial export goods of Turkey, sustained to decrease for the last four months to 0,8 billion US dollars in May, which is the lowest level since October 2017. As can be seen in the graph below, trade war started by Trump administration in March 2018 continues to have a negative impact on Turkey’s production and exporting of both Motor Vehicles and Spare Parts and Iron and Steel Products apart from Covid-19.

In 2019, Turkey’s top ten export markets are listed from the most to the least as follows: Germany, Italy, USA, Spain, United Kingdom, France, Israel, Netherlands, Saudi Arabia, and Iraq. The graph below shows export performance of Turkey in country basis. Bursting Covid-19 in March 2020 reflected isolation and thus sharp deterioration in production, service, and trade in April. However, manufacturing PMI figures of May showed a slight improvement in economic activity associated with easing in isolation measures. Consequently, this has created a positive impact on Turkey’s exports performance in May.

Since Turkey’s industrial production depends on importing intermediate goods, it will not be a surprise to see an increase in import figures in May. The import figures of May will be released by Turkish Statistical Institute ( at the end of June.

Fulya Gürbüz, Ph.D.

Main factor in price increases is the depreciation of the Turkish lira

Turkish Statistical Institute released consumer (CPI) and domestic producer price (D-PPI) indices of May 2020. As can be seen in the graph above, monthly changes of both inflation figures have been rising continuously since December 2019.

CPI (2003=100) increased by 1.36% on monthly basis on the previous month by 1.36%, on December of the previous year by 4.57%, on same month of the previous year by 11.39% and on the twelve months moving averages basis by 12.10% in May 2020.

D-PPI (2003=100) increased by 1.54% on monthly basis, increased by 6.15% on December of the previous year basis, increased by 5.53% on same month of the previous year basis and increased by 9.14% on the twelve months moving averages basis in May 2020.

However, the year on year changes in both indices look more moderate:

If you pay attention to the graph above, I try to explain the year-on-year changes of inflation figures with the changes of USD/TRY. Why do I do that?

Because Turkey’s production mechanism depends mainly on intermediate goods imports, and payments are made in foreign currencies which are mainly in US dollars and Euro. Therefore, the price rise of imported goods in terms of Turkish lira is the most important factor affecting production costs and thus output prices.

As can be seen in the graph below, another important factor that causes price increases is the increase in taxes on goods.

Fulya Gürbüz, Ph.D.

Signs of mediocre price increases in global manufacturing sector

According to the Turkish Exporters Assembly, exports regarding general trading system increased by 1 billion dollars to 10 billion dollars with respect to the previous month in May 2020. In April, exports fell to 9 billion dollars which are the levels seen during the 08/09 global financial crisis.

The main reason behind the rise of exports in May is the easing in the deterioration particularly in Germany’s manufacturing sector which is the largest exports market of Turkey.  

According to J.P.Morgan Global Manufacturing PMI data, global output continued to decline at a slower rate in May, after record lower levels in April. With two exceptions: China and Kazakhstan. The message from these two exceptions is this: easing in isolation brings a rise in both production and output prices.

There is a risk of second wave in pandemic. In this case, we will see a decline in industrial output again. On the other hand, easing in isolation measures will lead to rise in both production and employment. However, we will start to talk about the inflation pressures if the improvement in the sector continues. Who will get affected the most? Particularly, the lower income household: They were exposed to harsh price increases following appearing the pandemic in Turkey, they will expose to the rise in output prices.

Fulya Gürbüz, Ph.D.