Is Bank Research: Data highlights for Turkish Economy

Turkey’s first quarter growth announced at the end of May signaled that the economic impact of the pandemic could exceed expectations. Although confidence indicators have inched up as of May, production and trade data show that the decline in economic activity has continued. While the manufacturing PMI indicated that the contraction in the sector continued albeit at a slower pace in May, exports fell more than 40% yoy in the same period according to the data of the Ministry of Trade.

As monetary policy will remain accommodative should the downward trend in inflation continue in the upcoming period, we anticipate that the economy will recover in the second half of the year along with an enlivened domestic demand, concludes the Monthly Economic Report of Is Bank Research Department, which is one of the oldest and most venerable dedicated research groups working for the banking industry.  Some of the highlights are worth bringing to the attention of the  international audience.

Net export dragged down the growth

In line with the rise in imports due to the recovery in economic activity since the second half of 2019, net exports continued to lower the growth in the first quarter. Import volume, which limited the growth by 5.8 pps in the last quarter of 2019, dragged down the growth by 4.1 pps in the first quarter of 2020. In this period, export volume too made a negative contribution to growth for the first time since the third quarter of 2016. In this period, the fall in exports in real terms was limited with 1% reducing growth by 0.2 pp.

Downward trend in investment expenditures continued

Investment expenditures fell for the seventh quarter in a row in the first quarter of 2020. Having fallen by 0.6% yoy in the previous quarter, investment expenditures contracted by 1.4% yoy in the first quarter this year. In this period, investment expenditures dragged down the growth by 0.4 pp. Construction investments continued to be the main factor pushing down overall investment expenditures. Construction investments, which have a share of 50% in total investment expenditures at current prices, fell by 10.2% yoy in real terms. On the other hand, machinery and equipment investments, which have a share of 40% in total investment expenditures at current prices, rose by 8.4% yoy in real terms. Machinery and equipment investments had also recorded a strong increase in 2019 Q4.


A lower-than-expected growth in the first quarter supported pessimistic expectations about the impact of Covid-19 for the second quarter. Against this backdrop, the annual drop in GDP in the second quarter is expected to reach double digit rates. In the second half of the year, on the other hand, we anticipate that economic activity will recover along with the measures taken to support the economy and the recent normalization steps. Despite adverse external demand conditions, the decline in commodity prices, particularly oil, signals that the risks on net export performance may be relatively balanced.

Gradual easing of restrictive measures around the world and the uncertainty regarding the course of the pandemic will continue to be important factors that may affect economic activity in Turkey in the period ahead.

House sales fell sharply in April

House sales in Turkey dropped by 55.5% yoy and became 42,783 units in April because of virus outbreak. Despite the fall in interest rates, mortgaged sales decreased by 23.9% yoy, while other sales fell by 65.1%. In the first four months of the year, mortgaged sales rose by 141.4% yoy, while total sales increased by 8.9%.

Confidence indices recovered slightly in May

Normalization steps in May reflected positively on confidence indices. In this period, real sector confidence index increased by 10.1 pts compared to the previous month and reached 76.9. Despite the negativity in the total orders in the last three months, expectations regarding the export orders and production volume for the next three months pushed the index upwardly. Following the sharp fall in April, the consumer confidence index also rose by 4.6 points mom to 59.5 in May. In April, the index was 54.9, the lowest level of the data set which started to be collected in 2004.

Strong outflow in portfolio investments…

In March, nonresidents’ net direct investments were realized as 974 million USD in Turkey. While real estate investments maintained their share in direct investments, equity capital investments decreased compared to last year.

Due to decreasing risk appetite on global scale, portfolio investments posted historically high capital outflow in March with 5.5 billion USD. In this period, non-residents made net sales in equity market and government domestic debt securities market by 1.1 billion USD and by 2.1 billion USD, respectively. In the same period, capital outflows stemming from net acquisition of financial assets abroad by domestic residents were realized as 2.2 billion USD. Thus, 12-month cumulative capital outflow increased to the historical level of 8.2 billion USD in March.

Swap agreement expectations supported TRY in May

Turkish lira, which decoupled negatively from other emerging market currencies in April due to rising concerns over the CBRT reserves, continued to depreciate in the first days of May. USD/TRY, which climbed to historically high level of 7.2685 on May 7th, followed a downward trend in the rest of the month thanks to the amendment of swap agreement with QCB, as well as the announcements pointing that new deals with other countries could be made. USD/TRY, which completed May with a 2.4% monthly decrease, became 6.8215 as of May 29th. EUR/TRY, on the other hand, declined slightly due to the appreciation of the euro in international markets.

Interest rates are at the lowest level of more than 10 years

According to the data released by the CBRT, on the week of April 24, annual consumer loan interest rates covering the personal finance, housing and vehicle loans have decreased to 8.45%, the lowest level since 2002. As of May 15, the said interest rate decreased by 16.9 pts yoy and became 10.9%. In this period, the interest rate of commercial loans decreased by 15.7 pts yoy to 9.7%.

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Published By: Atilla Yeşilada

GlobalSource Partners’ Turkey Country Analyst Atilla Yesilada is the country’s leading political analyst and commentator. He is known throughout the finance and political science world for his thorough and outspoken coverage of Turkey’s political and financial developments. In addition to his extensive writing schedule, he is often called upon to provide his political expertise on major radio and television channels. Based in Istanbul, Atilla is co-founder of the information platform Istanbul Analytics and is one of GlobalSource’s local partners in Turkey. In addition to his consulting work and speaking engagements throughout the US, Europe and the Middle East, he writes regular columns for Turkey’s leading financial websites VATAN and and has contributed to the financial daily Referans and the liberal daily Radikal.