Turkey Economic Outlook Fourth Quarter BBVA Research. October 2017

Transcription

1 Turkey Economic Outlook Fourth Quarter BBVA Research October 2017

2 Key messages 1. Global recovery proceeds at a stable pace, increasingly synchronized across large regions though inflation pressures remain contained 2. Thanks to the Credit Guarantee Fund (CGF), the Turkish economy continues to grow above potential, which leads us to upgrade our 2017 GDP growth estimate by 1pp to 6% 3. Higher momentum in economic activity and ongoing exchange rate pass-through especially from Euro results in a higher inflation path 4. The Central Bank of Turkey will remain tight for longer to restore credibility and contain inflationary pressures. We expect fiscal policy to remain supportive ahead of the elections in We expect current account deficit not to deteriorate excessively as the recovery in tourism revenues will buffer the higher import growth. * Please check the following links for the detailed analysis of and

3 GLOBAL Robust, stable and synchronized global growth

4 The positive global environment is consolidated Robust and stable growth However, with some decoupling between confidence and activity data 2 More synchronised recovery Especially in emerging economies Weak core inflation Some signs of recovery in salaries, but still very preliminary Central banks moving towards normalization High uncertainty and different pace between the US and the Eurozone Low financial volatility Emerging countries have benefited from inflows of capital Risk without much change Certain rebalancing between China and USA in the short term 4

5 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Global GDP accelerated slightly in 2Q17 while recent data suggest that it could maintain its dynamism in 2H17 World GDP Growth forecasts based on BBVA-GAIN (%, QoQ) World Manufacturing PMI Level CI 20% CI 40% CI 60% Point Estimates Period average EM Developed World Source: Bloomberg, BBVA Research 5

6 2Q10 4Q10 2Q11 4Q11 2Q12 4Q12 2Q13 4Q13 2Q14 4Q14 2Q15 4Q15 2Q16 4Q16 2Q17 The current recovery is more synchronized across different areas Index of growth synchronization between developed and emerging economies EM stable growth / DM deceleration DM growth acceleration/ EM moderation Growth acceleration in both DM/EM Developed (DM) - Significant growth rebound in the US - Positive surprise in Europe Emerging (EM) Small deceleration in China, although smaller than expected, still supporting the rest of Asia Recovery in other emerging regions, such as Russia and Latin America Growth increasingly supported by economic policies 10 0 Index of synchronization: result of inverting the standard deviation of the quarterly growth observed in the countries. In this way, the index associates smaller (greater) volatility in the growth among countries with a greater (lesser) degree of synchronization at world level. Sources: Markit Economics and BBVA Research 6

7 4Q07 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 2Q11 4Q11 2Q12 4Q12 2Q13 4Q13 2Q14 4Q14 2Q15 4Q15 2Q16 4Q16 2Q17 Core inflation dynamics still do not show any warning signal USA and Eurozone: Wages (YoY %) Despite economic growth and the improvement in the labor market, core inflation remains at relatively low levels Uncertainty as to whether the inflation determinants temporary or permanent Cautious central banks, especially in developed countries. More margin in emerging economies Eurozone USA Source: BBVA Research 7

8 Central banks: progress towards very gradual normalization Announcement in October on reduction of debt purchases FED Normalization of the balance sheet starting in October and the upcoming interest rate hike in December, with two additional increases in 2018 for Rate increases are expected from mid-2019 BCE High level of uncertainty In the US, due to the moderation of inflation and the expected change in the FOMC in 2018 In the Eurozone, a bias toward more gradual tapering (strength of the euro) and a lag in the cycle of rate hikes (low inflation) 8

9 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Preference for emerging markets Preference for developed countries Financial markets: still favoring emerging economies Indicator of regional relocation of assets (standard deviation from the historical average) Weakness of the dollar and comparatively poor US bond yields boost the quest for profitability and bolster assets in emerging markets Global liquidity will remain high, given the gradual process of normalization by the Fed and the ECB, although these tailwinds will disappear Source: BBVA Research and Bloomberg 9

10 Upward revision for Europe and China, positive bias in South America USA EUROZONE CHINA MEXICO SOUTH AMERICA WORLD TURKEY Up Unchanged Low Source: BBVA Research 10

11 Turkish Economy Strong Growth and High Inflation The economic effects of the Credit Guarantee Fund (CGF)

12 mar.16 Mar-16 may.16 May-16 Jun-16 jun.16 Jul-16 jul.16 sep.16 Sep-16 Oct-16 oct.16 nov.16 Nov-16 Dec-16 dic.16 Feb-17 feb.17 mar.17 Mar-17 abr.17 Apr-17 Jun-17 jun.17 Jul-17 jul.17 ago.17 Aug-17 Oct-17 oct Apr 02-May 10-May 18-May 26-May 05-Jun 13-Jun 21-Jun 29-Jun 07-Jul 17-Jul 25-Jul 02-Aug 10-Aug 18-Aug 28-Aug 05-Sep 13-Sep 21-Sep 29-Sep 09-Oct The exchange rate moves with some ups & downs related to global and geopolitical factors Turkish Lira vs US Dollar (Level) Turkish Lira: Global and Local Factors (weekly change) 3, , ,39 4.5% 3.0% 1.5% 0.0% -1.5% 3, % 2, % -6.0% 2, Global Component % Local Component % TL Weekly Change % Source: CBRT, Bloomberg and BBVA Research 12

13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 The GDP growth confirmed its robustness (2Q) with some extra impulse coming from the Credit Guarantee Fund (CGF) supply shock Monthly GDP Growth Indicator & Nowcast (YoY Change, %) Contribution of the CGF to GDP Growth* (pp ) 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% BBVA-GB GDP Growth (Monthly) GDP Growth July: 7.4% (96% of inf.) GDP growth nowcast August: 7.7% (92% of inf.) September : 8.2% (26% of inf.) Source: BBVA Research, Bloomberg * See the detailed analysis in the following link 13

14 The Credit Guarantee Fund has proved to be an efficient countercyclical tool, but it is not a free lunch The Effects of a Credit Supply Shock to the economy* (Shock of CGF, 5 times standard deviation in loans shock. Variables in 3-Month Moving Average) The CGF has a positive but temporary effect on growth, with a somewhat delayed effect on inflation once demand kicks in Once the positive impact on growth fades, the challenge for the government is how to maintain the impulse Source: BBVA Research, * See the detailed analysis in the following link 14

15 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Credit related items as durables consumption and construction investment have been particularly benefited by the countercyclical measures Monthly Consumption Nowcast (YoY Change, %) Monthly Investment Nowcast (YoY Change, %) 10% 8% 6% 4% 2% 25% 20% 15% 10% 5% 0% 0% -2% -4% BBVA-GB Cons Growth (Monthly) Cons. Growth Cons. Growth nowcast July: 3.9% August: 4.8% September: 5.7% -5% -10% BBVA-GB Inv. Growth (Monthly) Inv. Growth Inv. Growth Nowcast July: 11.9% August: 14.9% September: 16.3% Source: BBVA Research Source: BBVA Research 15

16 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Jul-16 Nov-16 Mar-17 Jul-17 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Jul-16 Nov-16 Mar-17 Jul-17 Employment is lagging behind but will be improving gradually once demand response starts to accelerate Unemployment Rate (SA, %) Employment Growth in Sectors (YoY) 12.0% 23% 16% 11.5% 11.0% 10.5% 10.0% 9.5% 9.0% 22% 21% 20% 19% 18% 17% 16% 12% 8% 4% 0% -4% 8.5% 15% -8% Unemployment Rate Youth people unemployment rate-rhs Industry Construction Service Source: Turkstat and BBVA Research 16

17 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Inflation has been recently showing negative surprises, especially on core items. Strong growth and the exchange rate depreciation against Euro are hitting the core inflation CPI Inflation & Its Components (YoY) 17% 14% 11% 8% 5% 2% -1% Core Inflation & Currency Basket (YoY) 11% 10% 9% 8% 7% 6% 30% 25% 20% 15% 10% 5% 0% -5% -4% 5% -10% Core Food Energy CPI Core Inflation Currency Basket 2M Lag - rhs Source: Turkstat and BBVA Research 17

18 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-13 Feb-14 Jun-14 Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Feb-17 Jun-17 Oct-17 Fortunately, The Central Bank (CBRT) has remained tight by continuing to rely on the Late Liquidity Window (LLW) CBRT Interest Rate Corridor (Annual Level, %) CBRT Funding Allocation (Bn TL) 15% 14% 12% 11% 9% 8% % 5% 3% ON Lending-Borrowing CBRT One-Week Repo CBRT LLW ON Borrowing CBRT Cost of Funding LLW Total ON Lending 1-week repo Source: CBRT and BBVA Research 18

19 1/1/2006 6/1/ /1/2006 4/1/2007 9/1/2007 2/1/2008 7/1/ /1/2008 5/1/ /1/2009 3/1/2010 8/1/2010 1/1/2011 6/1/ /1/2011 3/1/2012 8/1/2012 1/1/2013 6/1/ /1/2013 3/1/2014 8/1/2014 1/1/2015 7/1/ /1/2015 5/1/ /1/2016 4/1/2017 The CBRT stays firm, somewhat forwarding the market to «tighter for longer» in its policy reports and wording CBRT Monetary Policy Sentiment in Minutes* (Standardized, estimated through Big Data LDA Techniques from Minutes & Statements) The CBRT will maintain its tight stance for longer in order to help the exchange rate depreciate only smoothly ahead of the Global Central Banks normalization process Tightening Easing Last CBRT statement was among the tighter tone from historical perspective Difficulties to curb inflation (Government s MTP assumes above potential growth rates in the next 3 years) and intense geopolitical environment prove to be the main risks on monetary policy Word Clouds of some of the estimated topics* Source: BBVA Research See the detailed analysis at the following link 19

20 Dec.12 Dec.13 Dec.14 Dec.15 Dec.16 Dec.17 Dec.18 Dec.19 Dec.20 The Government also contributed with countercyclical fiscal policy, but should start to normalize fiscal policy soon Budget and Primary Balance (% GDP, *3Q GDP data is a forecast) 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% The Government foresees supportive fiscal measures to continue in the next 3 years (MTP), engaged with solid revenues on top of high economic growth and recent tax hikes to finance increasing defense & security expenses Our expectation is a slightly worse evolution of budget deficit as we forecast GDP growth lower compared to the above potential estimate levels of the Government in the medium term -2.0% -2.5% Budget Balance Government MTP Forecasts Primary Balance BBVA Research Forecasts Source:Turkstat, Ministry of Finance 20

21 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Feb.10 Jul.10 Dec.10 May.11 Oct.11 Mar.12 Aug.12 Jan.13 Jun.13 Nov.13 Apr.14 Sep.14 Feb.15 Jul.15 Dec.15 May.16 Oct.16 Mar.17 Aug.17 The external sector has been supportive and tourism figures are recovering this will buffer the recent increase in imports Foreign Trade Volumes (3MA YoY) 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% Number of Tourists (YoY) 50% 40% 30% 20% 10% 0% -10% -20% -30% -6% -40% Real Exports Real Imports Source: Ministry of Culture, Turkstat and BBVA Research 21

22 Aug.06 Aug.07 Aug.08 Aug.09 Aug.10 Aug.11 Aug.12 Aug.13 Aug.14 Aug.15 Aug.16 Aug.17 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Only a marginal deterioration in current account balance is expected thanks to the recovery in tourism revenues. Portfolio flows have been gaining momentum in the financing side Current Account Balance (12M sum, bn USD) Current Account Financing (12M sum, % GDP) 10% 8% -10 6% -30 4% % 0% -2% -90 CAB CAB Exc. Energy & Gold Net Other Investment Net Portfolio Flows Net FDI CAD Source: CBRT, Turkstat and BBVA Research 22

23 Turkey The Baseline Scenario

24 Dec.14 Mar.15 Jun.15 Sep.15 Dec.15 Mar.16 Jun.16 Sep.16 Dec.16 Mar.17 Jun.17 Sep.17 Dec.17 Mar.18 Jun.18 Sep.18 Dec.18 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16 Dec-16 Apr-17 Aug-17 Dec-17 Apr-18 Aug-18 Dec-18 Economic growth will be higher as inflation GDP Forecasts (YoY Baseline scenario) 9% 7% 5% 3% 1% -1% Inflation Forecasts (3MA YoY baseline scenario) 14% 12% 10% 8% 6% 4% 2% Source: BBVA - Garanti Research Models We revise our 2017 GDP growth estimate by 1pp to 6% on positive impulses of the CGF. We maintain our forecast at 4.5% for 2018 Stronger demand and the appreciation of Euro weigh on the core inflation outlook; hence, we upgrade our 2017 yearend inflation to 10% 24

25 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 The CBRT will maintain the tight monetary policy for longer, supporting the exchange rate performance Average Funding Rate Forecasts (% Baseline scenario) Exchange Rate Forecasts (USDTRY Level baseline scenario) 15% 13% 11% 9% 7% 5% Source: CBRT and Garanti Research Models Relatively higher inflation path will require the Central Bank to stay tight for longer. We initially thought that the Bank could ease up once inflation starts to recede The exchange rate will depreciate more gradually as global pressures will be compensated by a tighter than expected monetary policy 25

26 Baseline forecasts f 2018f GDP (%) 6.1% 3.2% 6.0% 4.5% Private consumption(%) 5.4% 3.7% 4.5% 4.0% Public consumption (%) 3.9% 9.5% 4.4% 5.1% Gross fixed investment (%) 9.3% 2.2% 6.2% 5.2% Exports (%) 4.3% -1.9% 10.9% 6.3% Imports (%) 1.7% 3.7% 4.2% 6.7% Inflation (end of period. YoY %) 8.8% 8.5% 10.0% 7.8% Exchange Rate vs US dollar (end of period) Exchange Rate vs US dollar (average) Official Interest Rate (average) 8.4% 8.4% 11.5% 9.5% Current Account Balance (% of GDP) -3.7% -3.8% -4.5% -4.8% Central Government Budget Balance (% of GDP) -1.0% -1.1% -2.0% -2.0% EU Defined Public Debt (% of GDP) 27.5% 28.3% 28.9% 30.6% f = forecast 26

27 Turkey The Balance of Risks

28 Mar-08 Dec-08 Sep-09 Jun-10 Mar-11 Dec-11 Sep-12 Jun-13 Mar-14 Dec-14 Sep-15 Jun-16 Mar-17 Dec-17 Sep-18 Jun-19 The major Central Banks normalization policies should be monitored as they can exert some pressure on EM assets US: FOMC Interest Rate Expectations (Level) OIS Implied Fed Rate Latest Value OIS Implied Fed Rate As of Fed Sep Meeting Date FOMC Exp Sep17 BBVA Research FED and ECB balance sheet (level and quarterly changes, in USDbn) Forecast Fed ECB Total Total Stock Fed balances and ECB (USD (rhs) bn)(rhs) 0 Source: CBRT and BBVA Research 28

29 - Short-term probability + Short-term rebalancing from China to US could be a risk factor June Sept Deleveraging risk: very high but more contained in the short run (more gradual economic slowdown & authorities strategy) Need to reform state-owned companies Management of the soft landing US EZ - Severity + CHN Political controversy & cyclical slowdown risk Financial instability risk: signs of overvaluation in some assets (potential spillovers on private sector) Fed s exit risk: low but high uncertainty on hikes path Political and banking concerns: more contained except in Spain German elections: the FDP role in a three-way coalition and the surge of AfD may restrict the margin for pro-eu policies. Italian elections (before May18): risk of a coalition (led by Berlusconi s party) opposed to European project Brexit: lower risk. Towards a soft position: transition period around two years based on the existing structure of EU rules ECB s exit risk: low; very gradual starting with tapering in 2018 Upward bias Downward bias **Other risks: Geopolitical (North Korea); Protectionism (China-US) 29

30 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Safe Low High Intense The Security Climate in Turkey has improved within a year Turkey: Conflict Index (Conflict events / Total in Media) Death tolls in PKK terrorist attacks State Security Forces Civilians PKK Terrorists Source: BBVA Research, International Crisis Group 30

31 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Safe Neutral High Extreme Get ready for a harsh statement on Turkey at the next EU summit and watch the Kurdish-Iraqi developments Turkey Foreign Affairs Index Turkey: The Iraqi Kurdistan Referendum USA EU Germany Source: BBVA Research 31

32 This report has been produced by the Turkey, China and Geopolitics Unit Chief Economist for Turkey, China and Geopolitics Unit Álvaro Ortiz Deniz Ergun Seda Güler Yiğit Engin Asuman Kemiksiz Ali Batuhan Barlas With the collaboration of Global Economic Situations Miguel Jiménez BBVA-Research Jorge Sicilia Serrano Macroeconomic analysis Rafael Doménech Global Economic Situations Miguel Jiménez Global Financial Markets Sonsoles Castillo Long-Term Global Modelling and Analysis Julián Cubero Innovation and Processes Oscar de las Peñas Financial Systems and Regulation Santiago Fernández de Lis International Coordination Olga Cerqueira Digital Regulation Álvaro Martín Regulation María Abascal Financial Systems Ana Rubio Financial Inclusion David Tuesta Spain and Portugal Miguel Cardoso United States Nathaniel Karp Mexico Carlos Serrano Middle East, Asia and Geopolitical Álvaro Ortiz Turkey Álvaro Ortiz Asia Le Xia South America Juan Manuel Ruiz Argentina Gloria Sorensen Chile Jorge Selaive Colombia Juana Téllez Peru Hugo Perea Venezuela Julio Pineda FOR ANY QUERIES PLEASE APPLY TO: BBVA Research: Calle Azul, 4. Edificio de la Vela - 4ª y 5ª plantas Madrid, Spain. Tel and / Fax bbvaresearch@bbva.com

33 Turkey Economic Outlook Fourth Quarter BBVA Research October 2017