Growth figures give mixed signals

While there was an expectation for economic activity to slow down this year, the figures released at the beginning of the week on Turkey’s January industrial production show that the new year started with activity above expectations. Industrial production in January registered a 7.2 percent increase, despite expectations of 4.4 percent.

Despite this surprising development in industrial production in January, we need to state the figures for the first quarter of 2014 growth give mixed signals. Despite a strong drop observed in consumer confidence in the first two months’ figures, especially in January, it is worth noting this situation has not yet reflected itself on the production and import of consumer goods. In fact, the PMI figures in the manufacturing industry registering an increase do support this outlook. Yet, developments in the production and import of capital goods give negative signals for investment spending for the period ahead.

It is inevitable that regulations introduced to narrow credit expansion, the apparent tight monetary policy and the loss of value in the Turkish Lira will show its shrinking effect in the period. Looking from this perspective, the effect of export on this year’s growth becomes very critical.

Right at that point, with the effect of mixed signals that come around with the released figures, disagreements started to appear among economists and banking analysts. While the majority of analysts argue that both the figures of January’s industrial production and the figures provided by Turkey Exporters’ Assembly (TİM) show an increase of production based on exports, some analysts say this pattern will continue, while others voice their expectation that it will not continue like this.

Discussions about demand

Some of the analysts argue that domestic demand will not shrink due to the effects of elections and defend the view that depending on the slow pace of improvement in Europe’s recovery, domestic demand, which will be inevitable to increase, and foreign demand will follow a balanced course. There are also expectations that the foreign exchange deficit will set for an increasing trend.

There are, however, analysts who argue that with domestic demand shrinking, there will be serious growth happening due to foreign demand, and therefore, there will not be the expected drop in growth ratios.

Therefore, expectations on this year’s growth have already become an issue of discussion in the markets, even at the beginning of the year. Some banking analysts say growth ration will remain around 2.5 percent while others argue it can go up as far as 4 percent.

We will have to wait for the figures of the coming months in order to have a healthier forecast.