May 23 2019

Turkey's economic outlook gets gloomier as firms express more pessimism

Pessimism among consumers and companies across Turkey's economy, from builders to manufacturers and the service industry, is increasing, adding to a picture of economic gloom in the country.

Seasonally adjusted confidence in the construction industry slid to 49.8 in May from 53.9 in April, the Turkish Statistical Institute said in an index published on Thursday. That was the lowest reading since a currency crisis ripped through the economy last August.

In an upbeat assessment earlier this month, Treasury and Finance Minister Berat Albayrak said that the worst of Turkey’s economic downturn is over. Some economists however are predicting a double-dip recession, with a return to economic growth in the first quarter but another contraction thereafter. Growth data for the first three months of 2019 is due on May 31.

Confidence in the services sector fell to 79.4 from 83.1 in April, the institute said. Retail trade confidence dropped to 89.4. Any figure below 100 reflects pessimism about the future.

Turkish companies are finding it more difficult to sell products and services after the lira extended last year’s losses of 28 percent. The currency has fallen about 14 percent so far this year, pressuring economic activity and inflation, pushing up interest rates and making imported goods and materials more expensive.

The release of the sectoral confidence data followed a dive in consumer confidence reported by the institute on Tuesday. That index fell to 55.3 points in May from 63.5 points in April, the lowest level since records began 15 years go.

The lira dropped 0.8 percent to 6.14 per dollar at 1:21 p.m. local time in Istanbul on Thursday.

Turkey’s government has cut taxes, provided discounts on food and arranged for state-run banks to approve loans at below market interest rates to help reinvigorate the economy. It is now planning to help the finance industry deal with tens of billions of dollars of unpaid debts owed by real estate and energy firms by taking them off banks’ balance sheets and into special funds. But progress on the plan has been limited.

The Turkish central bank said on Thursday that manufacturing confidence in May declined to 98.9, the lowest level since February, from 105.5 in April. Manufacturers benefit from a cheaper lira when selling their goods abroad, but export growth in recent months has been minimal.