Turkey’s manufacturing and composite PMIs published by Istanbul Chambers for Industry in conjunction with Markit, and SAMEKS, a data series published by business organization MUSIAD reveald MoM increases, with the former registering its strongest reading since 2019. The same goes for June BloombergHT consumer confidence, which recorded strong monthly increases.
With June exports dropping by 15% in calendar adjusted terms, and private fixed investments little to non existent, private consumption has assumed to role of the locomotive for the incipient economic recovery. This is all good and fine, except consumers are not spending higher disposable incomes, but riding the wave of ultra-cheap and easy-to-get credits, which state banks are handing out as part of Erdogan administration’s all-out effort to stimulate the economy before the slump in votes of AKP and its ally MHP become irreversible.
Bne Intellinews describes the magnitude of the credit-fueled boom. PA Turkey adds that it is very likely to end in late July, as tourism season turns out empty and rising Covid-19 cases stokes the fear of shopping or dining outside.
Credit card and debit card payments in Turkey slightly declined to a value of TRY20.1bn ($2.9bn) in the country’s fourth ‘post-lockdown’ week (ending June 26) from TRY21.2bn a week ago, according to latest data from the Central Bank of the Republic of Turkey (CBRT).
The first impact of the health and economic emergency on card payments — a fairly accurate coincident indicator for consumption — was felt in the week ending March 27 when the total value of such transactions fell sharply to TRY13.5bn.
Turkey reopened restaurants and beaches and ended travel restrictions on June 1 after reopening shopping malls on May 11.
Unable to hand out cash, government jawbones banks to lend freely
In April, the government launched a campaign to delay repayments on credit card and other bank debts for a three-month period. Private lenders have joined the state lenders in conforming with this.
The impact of the delayed repayments on consumer spending is awaited. New delays on top of already delayed repayments could weigh on private lenders’ moribund hopes for profitability.
Finance Minister Berat Albayrak stated on April 12 that state lenders had postponed TRY60bn worth of loan and credit card debt repayments, while he called on private banks to also offer delays. Eventually, they did.
In April, 38,000 Turks used a credit card for the first time. There were 71mn credit cards and 168mn bank cards in the country of 83mn people as of end-March, according to latest data from the Interbank Card Center (BKM).
Household consumption in Turkey in the first quarter stood at TRY610bn, or 57% of overall GDP, in current prices. Card payments amounted to TRY249bn, equivalent to 41% of household consumption in official GDP.
Spending recovers strongly in 2Q
In the recorded second quarter to date (from April 1 to June 26), card payments totalled TRY217bn, the lowest figure since Q1 2019. The remaining four days are awaited for ascertaining the overall Q2 2020 figure.
Higher card transaction volumes could also be a sign of inflation
As of June 26, the credit card debt stock of consumers rose to TRY113bn from TRY110bn in the previous week, according to separate data from banking watchdog BDDK. The figure stood at TRY103bn as of May 15.
The volume of consumer loans extended by Turkish banks also moved up to stand at TRY578bn in the week ending June 26 from TRY565bn a week earlier. The figure stood at TRY465bn at end-2019.
Housing loans jumped to TRY231bn as of June 26 from TRY223bn a week ago (TRY212bn as of June 5) while car loans inched up to TRY8.3bn from TRY8bn.
In June, vehicle sales in Turkey jumped, as expected, by 66% y/y to 70,973 units, highest level since December, after contracting 15% y/y and 2% y/y in April and May, respectively, according to data from the Automotive Distributers Association (ODD).
Significant jumps in home and white goods sales are also expected in the month thanks to the latest cheap consumer credit campaigns that were launched at the beginning of June.
BDDK also reported that the total Turkish lira loan volume climbed to TRY2.1 trillion as of June 26 from TRY2.07 trillion from the previous week. At the end of 2019, total lira loans volume was TRY1.68 trillion.
Commercial loans, on the other hand, slightly rose to TRY1.41 trillion from TRY1.39 trillion. The figure stood at TRY1.08bn at end-2019.
Official CPI inflation slightly rose to 12.6% in June from 11.4% in May, as B and C core inflation proxies recorded MoM increases above 1.5%. The current account, too is expected to turn strongly negative.
A private think tank which wishes to remain anonymous shared via e-mail its forecasts with PA Turkey:
The real surprise of sorts was in the (preliminary) June data, which showed both exports and imports rising, at 15.8% and 8.2%, respectively, over the same month of previous year. The trade deficit came in at $2.8 billion as a result, with the 12-month rolling deficit thus decreasing to around $39.6 billion, from $40.2 billion in May.
Our take on the June figures is basically that we just need to “wait and see”. While relative stability in certain export markets and a relative rebound in the domestic economy (combined with low rates/cheap loans) might have boosted exports and imports, respectively, we think that the positive year-on-year growth largely owes to calendar effects — with a long religious holiday falling in June last year, versus May this year.
As for the road ahead, the outlook for trade and more broadly the current account dynamic is, needless to say, unusually uncertain. In the very near-term, based on trade data — and assuming that tourism revenue was probably close to zero in May-June, we estimate that the May and June current account deficits might come in, roughly and tentatively speaking, approximately around $4 billion and $2.5 billion, respectively.
“Super spreaders’ threaten Turkey’s fight against coronavirus pandemic
Professor Mehmet Ceyhan, an infectious disease expert from the country’s Hacettepe University, says Turkey needs to be cautious against “super spreaders” or patients with the risk of infecting more people than other patients.
Ceyhan says these people played a major role in stopping the reduction of new cases and warns against such possible patients working in crowded workplaces and places with many customers.
“We need to scan these people though a lower rate of them are super spreaders,” Ceyhan says. He counts health care personnel, ticket office workers, supermarket cashiers, hairdressers, flight attendants and drivers among those with the risk of being super spreaders.
“It was not projected how frequent asymptomatic people will continue infecting others. I always believed it would be a higher rate. But facts show that although you find cases and isolate those they came to be in contact with, asymptomatic patients continue infecting others,” Ceyhan told Demirören News Agency (DHA) in an interview on Sunday.
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