Emerging Europe Economics

Turkey Industrial Production & Retail Sales (Nov.)

Emerging Europe Data Response
Written by Jason Tuvey

The Turkish industrial production and retail sales figures for November were a mixed bag but, on balance, suggest that the economy gathered pace in Q4. Looser policy means that we think the economy will record faster growth this year than most currently anticipate. But this will come at the expense of a build up of macro imbalances that will ultimately force the central bank to hike interest rates later this year.

Economic recovery gathers pace in Q4

  • The Turkish industrial production and retail sales figures for November were a mixed bag but, on balance, suggest that the economy gathered pace in Q4. Looser policy means that we think the economy will record faster growth this year than most currently anticipate. But this will come at the expense of a build up of macro imbalances that will ultimately force the central bank to hike interest rates later this year.
  • The industrial figures were weaker than many, including ourselves, had anticipated. In seasonally-adjusted terms, output grew by 0.7% m/m meaning that the sector failed to fully reverse the drop 0.9% m/m drop in production in the previous month. Manufacturing put in a relatively strong performance, but this was partially offset by weakness in the mining and utilities sectors. (See Table 1.)
  • Meanwhile, data from the retail sector were more encouraging. Retail sales jumped by 1.7% m/m in November, up from 0.2% m/m in October and the fastest increase in five months. In year-on-year terms, sales grew by 8.5%, the best performance since early 2018.
  • The breakdown showed that this was supported by strong internet and mail order sales, which jumped by 15.1% m/m. It’s worth noting, however, that in recent years Turkey has embraced the phenomenon of “Black Friday” sales and that this may not yet be fully captured in the seasonal adjustment process. Indeed, a similar sized jump in internet sales in November last year was sharply reversed the following month.
  • On balance, though, the industrial production and retail sales figures suggest that the economy gathered pace in Q4. Indeed, looking at the 3m/3m rates – which align with the official GDP figures – both industry and retail have recorded faster growth. (See Chart 1.)
  • We think that the economy will perform better than most anticipate this year, but this is likely to cause higher inflation, a fresh deterioration in the current account and falls in the lira. The central bank will probably cut interest rates further at this week’s meeting – we have pencilled in a 100bp in the one-week repo rate – but we think that it will reverse course and hike interest in the second half of 2020.

Chart 1: Industrial Production & Retail Sales (% 3m/3m)

Sources: CEIC, Refinitiv

Table 1: Turkey Industrial Production & Retail Sales*

Ind. Production

Mining

Manufacturing

Utilities

Retail Sales

% y/y

% m/m

% y/y

% m/m

% y/y

% m/m

% y/y

% m/m

% y/y

% m/m

August

-3.5

-2.7

-5.7

-8.9

-3.3

-2.6

-0.4

0.8

-4.1

0.4

September

3.5

3.4

5.8

7.6

3.6

3.5

0.4

-1.5

3.1

0.8

October

3.9

-0.9

6.6

0.5

3.8

-1.0

1.2

-0.3

6.3

0.2

November

5.1

0.7

7.2

-3.1

5.3

1.1

-1.2

-2.2

8.5

1.7

Source: Turkstat. *y/y numbers working-day adjusted, m/m numbers are seasonally- and working-day adjusted.


Jason Tuvey, Senior Emerging Markets Economist, +44 20 7808 4065, jason.tuvey@capitaleconomics.com