Turkey: Economic activity “bottoming out” signals broaden

Turkish Industrial Production (IP) increased by 1% mom in seasonal and calendar adjustment terms in January after five months in a row of monthly negative contractions. Industrial Production contracted by 7.3% in year growth rates in line with our expectations but lower than consensus (-8% Consensus vs. -7.1% BBVA Research). Including this data, our monthly GDP indicator (GBTRGDPY Index at Bloomberg) nowcasts a contraction of 2.2% yoy growth in February (with 37% info) signaling a bottoming-out after December and January (both at -3.0). The stabilizing IP trend, the limited recovery in confidence indicators, the already positive annual growth rates in credit growth and the deceleration in the contraction of intermediate goods imports all signal that the economy has already reached the trough of the business cycle during the last quarter of 2018. We maintain our GDP growth forecast at 1% for 2019 on the basis of the bottoming out and the positive statistical base in the second half of the year.

January Industrial Production join bottoming-out signals…

The monthly increase of 1% in IP was supported by all the sub-sectors but mainly the intermediate goods products, which is a good signal for further recovery in the coming months. In this respect, IP’s stabilizing trend stems from the intermediate goods, which is followed by the consumer goods production. In sectorial details, the recovery is still not broad-based while the manufacturing sector backs the recent limited pick-up. The production of other transportation (mostly defense items) and other manufacturing sector gave the main positive contributions (almost 1pp in total), while the deceleration in the contractions of fabricated metal, food and electrical equipment were the other prominent supportive factors. Our nowcasting demand subcomponents (see graphs 6-8) show that the contraction in domestic demand started to curve after the slight recovery in consumption and somehow stabilization in investment. Despite some downside risks on poorer than expected 4Q18 data and uncertainties and still uncertainty of the real effects of the recent pick up in credit growth, we maintain our forecasts of the bottoming out during the first of this year and positive growth rates in the second half thanks to the impulses and a positive base effect.

We maintain our 2019 growth estimate at 1%

Today’s data is another signal that we have already reached the trough of the business cycle but it is still early to draw a clear picture since there could be risks on both directions. The duration of the recovery will depend on the policies in the near future and external financial factors. Though, we maintain our 1% growth estimate for 2019 as the recent impulses and strong favorable base effects could balance the downside risks coming from corporates balance sheets and global and geopolitical uncertainties.

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