Turkish consumers left behind in global confidence rise

Turkish consumers are being left behind a recovery in consumer confidence gathering pace across the globe.

Data published by the Turkish Statistical Institute (TSK) on Oct. 23 show households becoming more pessimistic about the future, with the core measure of confidence dropping for a third month. Financial well-being and employment topped concerns.

The worsening sentiment is in stark contrast to measures of confidence elsewhere. In Europe, Turkey’s biggest trading partner, consumers are becoming increasingly optimistic, according to a European Commission survey. The OECD’s index, spanning 35 major economies, has been on an upward trajectory since August last year. Russian confidence is at the highest level since 2014.

Figures for October showed the TSK’s index at 67.3, compared with 68.7 in September, and 74 a year earlier; the biggest 12-month drop since September last year. A figure below 100 shows Turks are pessimistic about their economic outlook and financial plans. The announcement follows an increase in unemployment to 10.7 percent, with 21 percent of Turkey’s youth now out of a job and non-agricultural employment at 13 percent. Inflation has returned to double figures.


Turkish Consumer Confidence
Turkish Consumer Confidence suffers

Turkish President Recep Tayyip Erdogan has criticised the country’s banks for failing to support consumer spending, calling on them in a speech last month to cut interest rates and offer more cash to consumers and businesses. Earlier in October, he reiterated an unorthodox stance on interest rates, saying they were fuelling inflation.

The comments followed the conclusion of a 200-billion lira ($54 billion) government-sponsored lending scheme that economists estimate boosted economic growth by two percent this year. The lending helped loan expansion exceed 1.95 trillion lira in the 12 months to June, a 23 percent increase.

Government officials have highlighted Turkey’s growth performance, pointing to the 5.1 percent expansion in the second quarter. The increase, however, was led by a 25-percent boom in construction investment, largely from public-private sector investments like the third airport in Istanbul. But spending on machinery and equipment, a key indicator of the performance of the manufacturing industry, shrunk by 8.6 percent.

After criticism on social media, the government this month dropped plans to increase some income taxes to 30 percent from 27 percent and announced a more modest rise in taxes on cars. The hikes, it said, were part of plans to fund more military spending.

Consumer confidence has also come under pressure due to a diplomatic crisis with the United States which suspended visa services in Turkey after police there arrested two Turkish U.S. consular staff for alleged participation in the July 2016 failed coup. Turkey responded in kind, immediately halting visas for U.S. citizens.

The political tensions prompted a flash crash in the lira in overnight trading on Oct. 9. The currency tumbled by more than six percent, its biggest decline since the failed coup, and remains 4.3 percent weaker this month.

Erdogan showed no signs of retreating from the crisis at the weekend, saying the United States “can’t be a democracy” after it indicted members of his security detail for a brawl outside the Turkish consulate in Washington in May.

The Turkish government expects to beat its 5 percent economic growth target for this year. Still, economists including Haluk Burumcekci, who runs Burumcekci Consulting in Istanbul, estimate growth will be affected negatively in 2018 unless another similar credit-guaranteed stimulus is enacted. 

A Reuters economic survey expects inflation to remain high, at 9.8 percent by end-year and 8.4 percent at end-2018, curbing spending power and capping the positive effect of wage growth. Core inflation, which excludes energy, food and other volatile prices, climbed to 11 percent in September, its highest level since 2004, and producer prices accelerated to 16.3 percent.

To help bolster investment in the economy, the government has approached international banks including China’s ICBC for an initial loan of $5 billion for its sovereign wealth fund, Bloomberg reported last week, citing people with knowledge of the matter. The fund, established more than a year ago, was founded to help spur large-scale investments. It remains unclear whether such spending will have any impact on consumer sentiment.