The Kapali Carsi

General themes on the week’s Turkish economic data

We had a lot of data releases in Turkey this week. Rather than delve into the nitty gritties of the statistics, I would like to point out some general themes that emerged.

Here is the intro. my latest Hurriyet Daily News (HDN) column, where I go over a few general themes that emerged from this week’s Turkish econ. data releases. You can read the whole thing at the HDN website. I don’t have an addendum, but while revealing the fiscal figures, Finance Minister Mehmet “Nominal” Simsek shared his view on the economy. My friend Ozlem Derici, chief economist of Denizinvest, summarized the main points from the Minister’s remarks in bullet points. I will be using her format and respond to each in italics:

§ GDP growth is expected to be around 4% in 2013. US monetary policy and domestic politics pose downward risk for 2014 growth target: Pigs might fly, but the reality is that even 3 percent growth would be an achievement- which would imply that, as I explained in the column, unemployment is likely to increase.

§  We may see current account deficit narrowing significantly this year. Macro prudential measures, fiscal measures, depreciation in the currency and recovery in Europe will support improvement in current account balance: I am not so sure on the European recovery, but I am sure that the current account deficit will narrow, as I also explained in the column.

§  There is no reason for inflation to remain high. Large output gap eliminates demand pressure over prices, reduces pricing power.: There is a lot of reason for inflation to remain high, as I explained in a recent blog/post. The factors I mentioned there will more than offset the favorable effect from the output gap.

§  Short term open FX position of the corporate sector has come down to US$14bn: This data is not published, but I doubt it would be that small.

§  Fiscal balances will remain strong in the period ahead, banking system is sound and there is no deterioration in household balance sheet: Fiscal balances will not remain strong, not only because of probable pork-barrel spending before the local elections at the end of March, but also because the strong VATs that drove the budget will not be there this year. Also, as I explained in the column, since there isn’t budget flexibility, fiscal strength doesn’t mean a lot in Turkey. Running a tight fiscal ship is useful to control inflation and the current account deficit, but there is not a lot of room to support the economy without running a significant budget deficit. The government could do it last year because of the robust tax revenues, which we won’t be seeing this year.

§  We do not have to implement orthodox monetary policy only because some others want us to do so, states Minister Simsek.: Sure, but you will have to because the lira depreciation will force you to- eventually if not at the upcoming rate meeting next week.

§  Fiscal measures should come as no surprise for the CBT. We communicated the measures in general terms with the CBT, says Minister Simsek.: I will ask Governor Erdem Basci if I see him:)

§  Minister Simsek will visit investors in London and NY next week to explain the recent developments in Turkey: Have a pint for me as well:)

§  No further measures are in the agenda from fiscal side this year, yet taxes may be adjusted on the upside or downside should conditions change dramatically.: Upside, not downside. Also, we will be seeing natural gas price hikes soon, as I explained in a recent post– despite claims to the opposite from the Ministry of Energy- it will just be after the elections.

§  Privatization revenue in the order of TL6.8bn is expected to be transferred to Treasury this year and no slippage that requires a change in strategy is expected.: OK, I believe you:)

Now, you know why I call the guy Minister of Public Enlightenment and Propaganda:)…

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