Turkey economic indicators give mixed picture as lira slides

Turkey’s leading indicators for manufacturing and services are giving a mixed picture for the economy, creating a possible headache for the government as it seeks to spur an expansion.

Capacity utilisation and economic confidence edged up in February, but a revival in the construction industry and retail may be stuttering, according to data published on Monday.

Turkish President Recep Tayyip Erdogan’s government has sought to bring down interest rates and flood the economy with cheap lending to meet a target of growing the economy by 5 percent this year. Economic activity slumped last year after a currency crisis ripped through financial markets in the summer of 2018.

Confidence in the construction industry dropped to 74.5 points in February from 78.9 the previous month in the first decline since November, figures published by the Turkish Statistical Institute on Monday showed. Any reading below 100 reflects pessimism among companies. Retail trade confidence also fell, while sentiment in the service industry improved.

Capacity utilisation of Turkish manufacturers rose to 76 percent this month from 75.5 percent in January, the central bank also said on Monday. The rate compared with 77 percent in December. Meanwhile, confidence among industrialists climbed to 106.9 points from 104.1 points, the highest level since May 2018, the bank said.

A prolonged and strong recovery in economic activity - the government predicts that the economy grew 5 percent annually in the fourth quarter of last year – is far from guaranteed. Investor concerns over economic policy, a conflict in Syria and a spread in the coronavirus to countries, including neighbouring Iran, all stand as risks.

Recent losses for the lira, if protracted, could also spur inflation and hurt consumer confidence. The lira dropped by 1 percent to 6.15 per dollar in late afternoon trading in Istanbul, taking losses this year to more than 3 percent.

Investor confidence in economic policy has been hurt by a series of interest rate cuts by the central bank, which are being implemented under strong government pressure. The bank’s benchmark lending rate now stands at 10.75 percent, below inflation of 12.2 percent, reducing the attractiveness of investing in Turkish bonds.