Weak lira ‘hurting Turkish consumer confidence’

ANKARA - Anadolu Agency

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The volatility of the Turkish Lira is the major factor in the low levels of consumer confidence in Turkey, according to economists speaking to Anadolu Agency.

In 2010, the Turkish Statistical Institute’s Index of Consumer Confidence was at about 80. The index runs from 1 to 200, with readings below 100 indicating relative pessimism.

In October 2014 it had fallen to 74 and by December 2014 it was down to 68.67. In April this year it plunged further to 64.39 and in May to 64.29, the lowest reading since March 2009 when it was 60. 

Economists forecast that confidence would continue to fall in the coming quarter.

“The dollar-lira exchange rate is perhaps the most important factor in undermining consumer confidence in this country,” commented Prof. Erhan Aslanoglu, an economist with Marmara University in Istanbul. “This has an immediate and sharp effect on consumers.”

Istanbul-based economist Emre Deliveli, also a Hürriyet Daily News columnist, agreed. “After years of high inflation, consumers are very sensitive to what they can buy,” Deliveli said.

Overall, the long period of economic volatility that began in 2014 has soured sentiment for consumers. “Consumers may also have become increasingly aware about the risks facing the economy, and the currency in particular,” said William Jackson, chief economist for Emerging Markets at Capital Economics in London.

One might think that the international value of the currency would not be something that a broad mass of consumers would be concerned about, but it is an issue that confronts consumers in the most direct way, Deliveli suggested.

“The lira’s weakness and volatility affect consumer and real sector sentiment. When the lira is weakening or jumping around consumers simply do not spend, and businesses do not invest,” he added.

People find life ‘expensive’

“Our research shows that most consumers find life expensive in Turkey,” Aslanoglu said. “There is a healthy market for imported goods, and that is where currency swings can bite. It is also an issue for businesses in Turkey as raw materials used in production are often priced in dollars.”

With slower economic growth, there is concern about stagflation, high prices and low employment, he added. 

“High unemployment is a major drag on consumer sentiment, and it will continue to pressure it lower,” Deliveli said.

Consumers are also affected by political turbulence, and this was a factor even before the general election on June 7, Deliveli said. 

A resolution to the current political uncertainty, as parties negotiate to form a coalition government, could also give consumer confidence a boost.

But inflation has been an issue in Turkey for a long time, Aslanoglu explained.

“There was a time, around 2000, when the Turkish economy was highly dollarized, so currency value is an immediate issue for many consumers. People today still keep savings in foreign currencies, ever concerned about a loss in buying power,” he said, adding that there is a pass through from a lower-valued currency to inflation, and so support for higher prices continues to daunt consumers. 

Despite troubled sentiment, there has been a recent uptick in consumer confidence, Jackson said.

“The confidence data don’t necessarily tally with the data on actual household spending. For instance, we saw a sharp pick-up in consumer spending growth in the first-quarter GDP figures. And data on registered motor vehicles suggest that purchases are picking up too. In this sense, there is at least a positive in that, although confidence is subdued,” Jackson added.