Back in August I was expecting Turkey's growth rate to slow, but not to this extend. Now I think in fourth quarter Turkish economy will shrink by 4%. The best thing about the global recession is that oil prices went down to $40. Remember in August I predicted that in contrary to most analyst oil prices will decline to $105 at the end of 2008. Well, I was too optimistic again!
As a result Turkey's inflation problem is gone for now. I also predicted this correctly. Now Central Bank is aggresively reducing interest rates and the government is "targeting" a growth rate of 4% in 2009. Targeting? I should say dreeeeeaming. Lower interest rates will not be enough to get Turkey out of recession. In 2009 Turkish economy will shrink.
Showing posts with label Inflation. Show all posts
Showing posts with label Inflation. Show all posts
Thursday, January 29, 2009
Wednesday, September 03, 2008
Turkish Inflation Peaks
It seems like Turkish CPI peaked in July at 12.1% and went down to 11.8% in August. In the next three months it is very likely that inflation rate will go below 10% and stay in single digits in 2009. The sharp decline is supporting the decline in inflation rates. Last year in September m-o-m CPI was 1%, in October it was 1.8%, and in November it was 2%. This year, we might experience a higher inflation in September because of Ramadan effect, but I don't think it is very likely.
I mentioned at Ekonomi Turk in July that oil prices will decline towards the $100 mark. I don't think we will see a significant increase in oil prices for the remainder of the year. Thus, it is now very likely that we will see single digit inflation rates at the end of the year.
I mentioned at Ekonomi Turk in July that oil prices will decline towards the $100 mark. I don't think we will see a significant increase in oil prices for the remainder of the year. Thus, it is now very likely that we will see single digit inflation rates at the end of the year.
Thursday, August 28, 2008
Inflation and Growth Rates in Turkey
Bloomberg has an article about recent developments in Turkey and the direction of the country. It is mostly accurate but a tad pessimistic about the effects of inflation on the growth rate. Namely it says "Higher inflation will likely lead to the shuttering of more businesses such as those along Hosdere Street, dragging the economy down even further. "
They talked about a bakery on Hosdere Street in Ankara and its problems. That bakery's problem is the high food prices which was partly the result of enourmous increases in oil prices. I don't think the inflation rate will stay above 10% level for too long in Turkey. I predict that oil prices will decline below $100 next year and this will bring down global inflation.
They are claiming that high inflation rates in Turkey will drag the economy down. Not true. What is important is not high inflation but high interest rates. Normally high inflation entails high interest rates and slower growth. However interest rates in Turkey is currently below 19% compared to 18% last year this time. This means that people are also expecting interest rates to go down to about 8% next year. So, current inflation is not a problem.
Considering that government will increase spending significantly for the rest of the year, this will also translate into better growth rates than pessimistic forecasts of the Bloomberg writers.
On the other hand they were quite accurate when they talk about the Central Bank:
"Yilmaz, the 61-year-old central bank governor, has stumbled in trying to check inflation. The bank won its independence from government control in 2001 as a prelude to the IMF accord. Yilmaz, a City University, London- trained economist, worked at the bank for 26 years before he was promoted to the top spot in April 2006.
He wasn't the government's first choice: one AKP candidate, who was rejected by then President Ahmet Necdet Sezer, was the head of an Islamic bank that follows instructions from the Koran to avoid interest payments.
Within a month of becoming governor, Yilmaz reversed three years of steady cuts that had taken the benchmark overnight borrowing rate to a low of 13.25 percent from 80 percent in 2001. The governor, in moving to boost the slumping lira, added 4.25 percentage points to the rate in the space of two months. The currency rebounded 6 percent in July 2006 after the rate hike to 17.5 percent.
Yilmaz Under Pressure
The following year, government ministers and industrialists, concerned about an economic slowdown, began publicly attacking the higher rates. Although Yilmaz ratcheted down the rate to 16.75 percent in August, arguing that inflation was slowing toward his 4 percent target for 2008, that wasn't low enough for exporters and labor unions, which placed full-page ads in national newspapers.
``Don't let employment and production die,'' the Turkish Exporters Assembly and the country's largest unions said in their Oct. 16 ads. ``Don't just act like you're cutting interest rates, really cut them.''
Yilmaz's series of four more cuts to 15.25 percent by February 2008 prompted economists and investors to question the bank's independence from political pressure. ``The central bank is still maturing into its autonomy,'' Isbank's Ozince says. ``Even central banks can make mistakes, but it's hard to steer the right path, because unknown factors can dominate, especially in shallow waters like Turkey's.''
Missing Targets
Only three months later, in May, as it became clear that the governor would miss his inflation target for the third straight year, Yilmaz began hiking rates again, to 16.75 percent. He also set a higher inflation target of 7.5 percent for 2009.
``They've been missing inflation targets for too long,'' says Jean-Dominique Butikofer, who helps manage about $725 million as head of emerging-market debt at Union Bancaire Privee in Zurich.
``They should have reacted much earlier on rates. The jury is still out to decide if inflation is being tackled or not.'' "
I have one thing to say about Central Bank. Some of the blame rests on the shoulders of the government, because they have been forcing and intimidating the CB for too long to reduce interest rates significantly. They got what they wanted and market interest rates jumped above 22%. After CB started tightening, market rates went down again.
They talked about a bakery on Hosdere Street in Ankara and its problems. That bakery's problem is the high food prices which was partly the result of enourmous increases in oil prices. I don't think the inflation rate will stay above 10% level for too long in Turkey. I predict that oil prices will decline below $100 next year and this will bring down global inflation.
They are claiming that high inflation rates in Turkey will drag the economy down. Not true. What is important is not high inflation but high interest rates. Normally high inflation entails high interest rates and slower growth. However interest rates in Turkey is currently below 19% compared to 18% last year this time. This means that people are also expecting interest rates to go down to about 8% next year. So, current inflation is not a problem.
Considering that government will increase spending significantly for the rest of the year, this will also translate into better growth rates than pessimistic forecasts of the Bloomberg writers.
On the other hand they were quite accurate when they talk about the Central Bank:
"Yilmaz, the 61-year-old central bank governor, has stumbled in trying to check inflation. The bank won its independence from government control in 2001 as a prelude to the IMF accord. Yilmaz, a City University, London- trained economist, worked at the bank for 26 years before he was promoted to the top spot in April 2006.
He wasn't the government's first choice: one AKP candidate, who was rejected by then President Ahmet Necdet Sezer, was the head of an Islamic bank that follows instructions from the Koran to avoid interest payments.
Within a month of becoming governor, Yilmaz reversed three years of steady cuts that had taken the benchmark overnight borrowing rate to a low of 13.25 percent from 80 percent in 2001. The governor, in moving to boost the slumping lira, added 4.25 percentage points to the rate in the space of two months. The currency rebounded 6 percent in July 2006 after the rate hike to 17.5 percent.
Yilmaz Under Pressure
The following year, government ministers and industrialists, concerned about an economic slowdown, began publicly attacking the higher rates. Although Yilmaz ratcheted down the rate to 16.75 percent in August, arguing that inflation was slowing toward his 4 percent target for 2008, that wasn't low enough for exporters and labor unions, which placed full-page ads in national newspapers.
``Don't let employment and production die,'' the Turkish Exporters Assembly and the country's largest unions said in their Oct. 16 ads. ``Don't just act like you're cutting interest rates, really cut them.''
Yilmaz's series of four more cuts to 15.25 percent by February 2008 prompted economists and investors to question the bank's independence from political pressure. ``The central bank is still maturing into its autonomy,'' Isbank's Ozince says. ``Even central banks can make mistakes, but it's hard to steer the right path, because unknown factors can dominate, especially in shallow waters like Turkey's.''
Missing Targets
Only three months later, in May, as it became clear that the governor would miss his inflation target for the third straight year, Yilmaz began hiking rates again, to 16.75 percent. He also set a higher inflation target of 7.5 percent for 2009.
``They've been missing inflation targets for too long,'' says Jean-Dominique Butikofer, who helps manage about $725 million as head of emerging-market debt at Union Bancaire Privee in Zurich.
``They should have reacted much earlier on rates. The jury is still out to decide if inflation is being tackled or not.'' "
I have one thing to say about Central Bank. Some of the blame rests on the shoulders of the government, because they have been forcing and intimidating the CB for too long to reduce interest rates significantly. They got what they wanted and market interest rates jumped above 22%. After CB started tightening, market rates went down again.
Monday, August 11, 2008
Inflation, Industrial Production and Current Account Deficit
Turkey is not invincible (contrary to the economy ministers' "bize bisey olmaz" comments at the beginning of the year).
Turkish industrial output grew at the slowest pace this year in June, signaling the $660 billion economy is cooling as rising fuel, food and credit costs weaken consumer confidence, reported Bloomberg.
Production rose 0.8 percent from a year earlier, compared with a 2.4 percent pace in May, The Turkish Statistical Institute, or TÜİK, said on its Web site Friday. Output was expected to rise by 2.5 percent, according to the median estimate of 11 economists surveyed by Bloomberg.
Latest Inflation Expectations:
Turkey's inflation rate will probably fall to 8.68 percent in 12 months time, according to the Central Bank's latest survey of businesses and economists.The forecast rose from 8.61 percent two weeks ago, the Ankara-based bank said on its Web site Friday. The estimate for inflation in 24 months increased to 7.30 percent from 7.21 percent, and the year-end forecast rose to 11.01 percent from 10.76 percent, it said.Inflation in July accelerated to 12.1 percent, the highest in more than four years, from 10.6 percent a month earlier.
Current Account Deficit was not a problem 2 years ago, the government had some time to implement micro (structural) reforms to rectify the problem. Not much was done. Sooner or later the market will correct itself. Here are the latest numbers:
Turkey's current account deficit widened for a 13th straight month in June as energy prices rose, increasing the likelihood the lira will weaken. The gap expanded to $5.6 billion from $3.1 billion in the same month a year earlier, the Central Bank in Ankara said on its Web site Friday. The gap was forecast at $5 billion, according to the median estimate of 15 economists surveyed by Bloomberg. Higher energy prices are pushing up the import bill, while the global credit crunch cuts the foreign investment Turkey needsto finance the current account deficit. The gap is likely to reach a record $50 billion this year and the financing situation is”worrying,” Moody's Investors Service said July 9.
Turkish industrial output grew at the slowest pace this year in June, signaling the $660 billion economy is cooling as rising fuel, food and credit costs weaken consumer confidence, reported Bloomberg.
Production rose 0.8 percent from a year earlier, compared with a 2.4 percent pace in May, The Turkish Statistical Institute, or TÜİK, said on its Web site Friday. Output was expected to rise by 2.5 percent, according to the median estimate of 11 economists surveyed by Bloomberg.
Latest Inflation Expectations:
Turkey's inflation rate will probably fall to 8.68 percent in 12 months time, according to the Central Bank's latest survey of businesses and economists.The forecast rose from 8.61 percent two weeks ago, the Ankara-based bank said on its Web site Friday. The estimate for inflation in 24 months increased to 7.30 percent from 7.21 percent, and the year-end forecast rose to 11.01 percent from 10.76 percent, it said.Inflation in July accelerated to 12.1 percent, the highest in more than four years, from 10.6 percent a month earlier.
Current Account Deficit was not a problem 2 years ago, the government had some time to implement micro (structural) reforms to rectify the problem. Not much was done. Sooner or later the market will correct itself. Here are the latest numbers:
Turkey's current account deficit widened for a 13th straight month in June as energy prices rose, increasing the likelihood the lira will weaken. The gap expanded to $5.6 billion from $3.1 billion in the same month a year earlier, the Central Bank in Ankara said on its Web site Friday. The gap was forecast at $5 billion, according to the median estimate of 15 economists surveyed by Bloomberg. Higher energy prices are pushing up the import bill, while the global credit crunch cuts the foreign investment Turkey needsto finance the current account deficit. The gap is likely to reach a record $50 billion this year and the financing situation is”worrying,” Moody's Investors Service said July 9.
Tuesday, July 29, 2008
Central Bank's 2008 Inflation Estimate
Central Bank finally caught up with the markets and updated its end-2008 inflation estimate to 10.6% from 9.3%. Despite the surprise decline in July inflation, CB determined that oil prices will average $140 for the rest of the year and this warranted an increase in inflation estimate.
Even though i don't think oil prices will be as high as CB estimates, considering that they have been behind the curve since August 2007, I welcome this revision as a step in the right direction. I still suspect that inflation will be above 11% by the end of the year. CB lost considerable credibility since CB president Durmus Yilmaz appointed in 2006. As a result, it is too early to comment on the 2009-2011 inflation estimates. It looks almost certain that Turkey will be one of the countries that will experience double digit inflation rates in 2008.
Even though i don't think oil prices will be as high as CB estimates, considering that they have been behind the curve since August 2007, I welcome this revision as a step in the right direction. I still suspect that inflation will be above 11% by the end of the year. CB lost considerable credibility since CB president Durmus Yilmaz appointed in 2006. As a result, it is too early to comment on the 2009-2011 inflation estimates. It looks almost certain that Turkey will be one of the countries that will experience double digit inflation rates in 2008.
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