Turkish economy continues to slow down

Turkish economy continues to slow down

As the new statics arrive, it can be seen that the deterioration of the Turkish economy is continuing in the the third quarter of 2014. While leading indicators continue to weaken, according to the statistics based on recent numbers, the real sector confidence index has been stagnating for three consecutive months, while the capacity usage rate has been shrinking for two consecutive months.

The feeble run of expectations, observed in production volume, capital expenditures and the labor market, effects the stagnation of the capital index. Because of this effect, the strong growth of 5.1 percent seen in the first four months of the year, is not continuing. The numbers, which were 3.5 percent in May and 1.4 percent in June, indicate that this stagnation will also be reflected in the months of July and August. While the seasonally adjusted capacity usage rate was 74.3 percent in July, this rate decreased to 74.1 percent in August, while the net capacity usage rate was 74.7 percent.

Production volume expectancy for the three upcoming months fell 3.6 points, while the capital expenditure index for the 12 upcoming months was the index with the sharpest decrease with 3.9 points. The employment index also shows stagnation over the past two months. This data all indicates that the regression seen in the labor market over recent months might continue. The unemployment rate, which was 9.1 percent in March, rose to 9.5 percent in May, and the leading indicators show the rate is going to increase further.

Export orders recorded only limited growth in August, and it is clear that the stagnation of economic growth in Europe, in addition to the problems in Middle East, are negatively effecting Turkey's export orders.

Growth can become a problem

In light of these statistics, it can be observed that there aren’t any changes to be made to the estimated growth rate for 2014. Market analysts, who didn’t increase their annual growth expectations even when experiencing steady growth in the first months of the year, are now inclined to be even more careful due to recent events. According to market analysts’ speculations, the 3 percent growth rate will be preserved for 2014.

These forecasts may change in the coming months with the publication of more data regarding recent months. It is also evident that markets are entering a pessimistic mood thanks to the increase of geostrategic risks and decreased liquidity from the U.S. With the addition of domestic political risks, the currency rate and interest limits have become more apparent. It is clear this pessimistic mood will endure at least until the new Cabinet is decided upon. Further on, developments inside the ruling Justice and Development Party (AKP) and events leading up to the general elections of 2015 will all effect the market.

It is evident that Turkey's economic balance will be damaged if the non-commitment of foreign capital continues. But there is also the danger of losing the economic balance due to the encouragement of increased expenditure with the upcoming elections. In short, it will be difficult to preserve the economic balances.