Economic confidence reaches 15-month high

Published 30.10.2019 19:43
Updated 20.12.2019 01:20
The economic confidence index fell to 75.2 points in June 2018 as a result of currency volatility, geopolitical risks and diplomatic developments.
The economic confidence index fell to 75.2 points in June 2018 as a result of currency volatility, geopolitical risks and diplomatic developments.

In light of the signs of improvement in economic activity and market developments, the Turkish economic confidence index shot up to 89.8 points in October, surging 4.5% compared to September

The economic confidence index increased by 14.7 points in October compared to the same month of the previous year, reaching 89.8 – the highest in the last 15 months, according to the data of the Turkish Statistical Institute (TurkStat) released on Wednesday.

The economic confidence index – a composite index that summarizes the general economic situation, expectations and trends of consumers and producers – stood at 105.2 at the beginning of last year. The index fell to 75.2 in June 2018 as a result of currency volatility, geopolitical risks and diplomatic developments.

Commenting on the data, Treasury and Finance Minister Berat Albayrak said Wednesday on his Twitter account the strong recovery in the markets continues, as shown by the improvement in all the confidence metrics. "The momentum we have achieved in this field will be one of the driving forces of the change and sustainable growth we desire," he added.

To restore the economic confidence, the government and relevant state agencies have introduced and implemented several measures to stabilize the tailspin in the economic activity, thereby launching an economic balancing period.

The decline in interest rates and single-digit inflation after a long break and reduced geopolitical risks increased confidence in Turkish lira assets, which was reflected in the economic confidence index.

According to the Turkish Statistical Institute (TurkStat), the economic confidence index rose by 3.8 points in October compared to the previous month.

Real sector confidence peaks

The recovery in the economy also manifested itself in the real sector confidence index. The real sector confidence index increased by 2.1 points to 100.9 in October compared to the previous month.

The seasonally adjusted real sector confidence index, on the other hand, saw an increase of 4.5 percentage points to 104.2 in October, reaching the highest level in 17 months.

The positive expectations for the future from both consumers and producers increased, while the sub-indices used in the calculation of the economic confidence index surged.

The index value, which represented the production volume in the next three months, reached the highest level in 20 months in October at 118.8.

Expectations that employment and export orders would increase in the next three months also improved.

Meanwhile, the impact of the housing loan interest rates, which reduced under the leadership of the public banks, on the construction sector was reflected in the construction sector confidence index. The index rose to 65.1 in October, the highest level since September 2018.

Revival in the automotive sector

Integral Investment Research Director Tuncay Turşucu said the economic confidence index increased by 4.5% in October compared to the previous month and hit 89.8 points.

He said this figure was the highest since July 2018 and pointed out that there were increases in five sub-groups that formed the confidence index. "The sharpest rise among them was seen in the construction confidence index with 8.3%," Turşucu said. "In fact, the construction confidence index has been on the rise for the last five months. The decline in interest rates seems to have accelerated the construction group."

He said the retail and service sectors experienced continuous increases in the last three months. Turşucu said it was also possible to see the increase in the retail group in the balance sheet of the retail companies in the stock exchange.

He added that the volatile trend in the consumer confidence index is still underway. "If the uptrend series starts in the consumer group, we may see strengthening in the automotive and home appliance sectors," he said. "On the other hand, consumer confidence will be the indicator of the increase in expenditures, but I can say that the general data on growth gives positive signals."

İsmet Demirkol from Bahçeşehir University said the real sector confidence index increased by 104.2, the service sector confidence index by 90.7, the retail trade confidence index by 102.3, and the construction sector confidence index by 65.1.

"In particular, the fact that the process that began with the central bank's interest rate cut of 425 basis points in policy rate on July 25 continued on Sept. 12 with an interest rate cut of 325 basis points contributed to a 4.5% increase in consumer confidence index, and this contribution reflected positively to the manufacturing industry, services, retail trade and the construction sectors," Demirkol said.

"It should be noted that the central bank’s interest rate cut of 250 basis points that continued on Oct. 24 and the positive effect of the interest rate cut by a total of 1,000 basis points since July 25 will also contribute to the November economic confidence index," he said.

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