DATA RESPONSE - Q1 GDP Growth Rate & April Current ... - Odeabank

DATA RESPONSE - Q1 GDP Growth Rate & April Current Account Balance June 11, 2013 Tuesday No: 50 Page: 1 Moderate recovery in Q1, as further improvement is on the way…  Turkish economy grew by 3% in the Q12013 more than 2.2% market consensus and 2.5% our expectations. We have mentioned the upside risk in the growth previously due to the rise in government spending and recovery of the services sector.  According to seasonally and calendar adjusted figures, quarterly growth was 1.6% while the annualized growth was 3.4%. In this respect, Turkey became one of the fastest growing economies within the G-20. Especially, the 1.6% growth is important considering - 0.2% contraction in our main trade partner of EU countries. For the rest of the year, the size of the recovery in EU will be important for the Turkish economy. The weakness in the EU economy continues to be the main downside risk to our 4.6% forecast.  The contribution of external demand to growth that contributes positively since the last 6 quarter was neutral due to base effect while growth stemmed from domestic demand. Considering the components of domestic demand, while private consumption contributed 2.1% to growth the private investments pulled back by same amount. Thereby, the growth was channeled through government expenditure and investment. In the first quarter the government expenditure increased by 7% and the government investment expenditures rose by record high 82%.  Based on our calculations, current account deficit to GDP ratio in first quarter of the year declined to 5.9% from 6.1% in the end of 2012 while total savings to GDP ratio declined to 13.8% from 14.2% due to shrinking private investments. In this respect, we think that current account deficit is limited by the favorable impact of declining oil prices while focusing on sustainable growth becomes more important than focusing on gradual increases in current account deficits. Domestic demand is improving trend due to lagging effects of monetary easing initiated from the second half of 2012. Additionally, the most crucial challenge is to keep gains from financial stability with balanced growth of both domestic and foreign demand or in other words maintaining “healthy growth”, which could be described as keeping the growth of investment expenditures in line with consumption expenditures. Most important factors for healthy growth could be listed as consequences of recent remedies to improve commercial loan growth and also signals of recovery in Europe.  Leading indicators in the first quarter of 2013 pointing out the recovery in the economic activity and expected GDP of 4% for the second quarter. Year-on-year growth rate of consumption goods production surged from 2.4% in the first quarter to 6.7% in April while investment goods production increased slightly from 1% to 1.7%. On the other hand, energy production which is expected to increase by 1.2% in April after -6.5% slumps in first quarter also supporting the view that economy is recovering. Year on year real growth of imported consumption goods increased from 6.4% in first quarter to 18.6% in April while real growth rate of imported investment goods increased from 0.1% to 14.4%. Moreover, loan growth rate also increased from 19% in first quarter to 22% according the most recent data.  Even though the weakness of Euro area economies still persist and the recent global and domestic developments pose downside risk through the expectations channel we still keep our 4.6% growth forecast for YE2013. Despite favorable oil prices, gold imports pick current account deficit up…  April current account deficit (CAD) was realized at 8.2 billion $ close to market and our expectations. Thereby, the 12 month CAD increased from 47.7 billion $ in March to 51.3 billion $ in April.  Increase in gold imports was effective in the acceleration of CAD. While there was net gold export of 5.7 billion $ in 2012, it turned out to a net gold imports of 3.4 billion $ (with the effect of 2.5 billion gold imports in April) in the January-April 2013 period. Moreover, we forecast a 2.5 billion$ gold imports in May 2013. In this respect, while the increase in gold imports pose upside risk to our forecast of 59.7 billion$ CAD in 2013, the moderate oil prices balance the risks currently.  April CAD data points a 1.5% negative contribution to growth in the Q22013. The y-o-y growth rate of exports of goods and services decreased from 9.2% in the first quarter to 1.3% April, on the other hand the growth rate of imports increased from 7% to 19% on the back of rise in gold imports and domestic demand. The recovery in the terms of trade due to decrease in oil prices and rise in exports despite the weakness in external demand reveal that the advantages gained during 2012 rebalancing process still continue.

DATA RESPONSE - Q1 GDP Growth Rate & April Current Account Balance June 11, 2013 Tuesday No: 50 Page: 2  According to our calculations, net energy imports cut pace thanks to favorable oil prices and eased from US$ 51.4 billion to US$ 51.1 billion on a 12-month rolling basis. Accordingly, 12-month non-energy balance turned to deficit at US$ 0.2 billion for the first time after consecutive six-months. We estimate that surplus in current account balance excluding net energy will turn out to be deficit towards the end of the year on the back of marked recovery in domestic demand and that deficit to be realized around 0.5% of GDP approximately. Our estimation regarding limited increase of current account deficit excluding net energy in spite of the recovered domestic demand stemming from the anticipation that structural changes that take place for goods and services exported after 2010 will continue. Just as, January-April figures also support our view. Foreign trade balance excluding net gold import decreased by -4.7% on the back of recovering domestic demand during this period while services balance surplus increased by 9.5%.  In April, current account deficit was financed by record-high of US$ 9.3 billion net portfolio inflows, US$ 4.4 billion external borrowing of private sector and US$ 2.6 billion rise in deposits, though US$ 7.3 billion increase in international reserves. More importantly, net error&omissions recorded an outflow of US$ 1.4 billion in April and hence outflow reached US$ 5.6 billion during January-April. Consequently, on a 12-month rolling basis, hot money inflow to current account deficit ratio hit to 90% as of April, the highest level in the past 27 months. Thanks to current macroeconomic stability conditions, we do not foresee a risk on debt roll over.  Excluding heavy gold imports, we think risks on our year-end current account balance forecasts are balanced. In this perspective, we keep our current account deficit to GDP ratio estimate to rise to 6.9% in 2013 from 6.0% in 2012 . Chart I: Non-energy CAD (12-month, US$ Billion)

Source: TURKSTAT, Odeabank Research

Source: TURKSTAT, CBRT and Odeabank Research

2013Q1

2012Q1

Odeabank Economic Research and Strategy Maslak Mahallesi Ahi Evran Caddesi No. 11 Olive Plaza Kat 9 34398 Şişli /İstanbul Phone: +90 212 304 87 42 Fax: 0212 304 84 45 Serkan Özcan, Assistant General Manager [email protected] Ali Kırali, Strategic Planning Director [email protected] Erkan Dernek, Strategic Planning Group Manager [email protected] İnanç A. Sözer, Economic Research Manager [email protected] This report, prepared by Odea Bankası A.Ş. from sources which we believe to be reliable and trustworthy is provided for information purposes only. Although the comments and assumptions based on the informations provided from official sources reflect our opinion on that date, these information shall not construe as investment consultancy activity. Odea Bankası A.Ş. does not accept any liability for any kind of loss arising out of faults and deficiencies in sources herein mentioned and usage of these informations. Our Bank has the copyright of the information in this report and it shall not be used, reproduced or copied by third parties without authorization.

Apr-13

Dec-12

Aug-12

Apr-12

Dec-11

Aug-11

Apr-11

Dec-10

Aug-10

Apr-10

Dec-09

Apr-09

-30%

Foreign demand Domestic demand GDP growth rate

Aug-09

-20%

2011Q1

2010Q1

2009Q1

2008Q1

-10%

2007Q1

0%

Net energy imports

Dec-08

10%

Current account deficit

80 70 60 50 40 30 20 10 0

Apr-08

20%

Aug-08

Graph I: Contributions to YoY GDP Growth Rate