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    Second quarter’s growth outlook becomes clearer

    Fatih Özatay, PhD28 June 2012 - Okunma Sayısı: 1037


    It is highly probable that slow growth – zero or negative growth when adjusted to population growth – has pertained in the second quarter of the year.

    The latest data on the second quarter, real sector confidence index and subcomponents for June, was released last week by the Central Bank. The index being below 100 indicate that survey respondents composing of large companies of Turkey are not confident in the economy. Lower the index value, higher is the lack of confidence in the economy, and vice versa. During crisis periods, index value generally stands significantly below 100, as was the case in the late 2008 and in most of 2009. Since 2010, the index fell below 100 only once (in December 2011). We mustn’t regard that one-month observation, though. Thus, we can say that the real sector has rebuilt confidence in the Turkish economy as of June 2012.

    Concerning the question I have sought to answer in the latest commentaries, the trend in recent months is more important than the index value being above or below 100. Because my main concern is as to how the economy will perform in the second quarter of the year following the substantial slowdown in the first quarter. Data released so far imply that the second quarter will not be much different than the first. However, many of the data is on April while a few is on May. Recently announced real sector confidence data was the first data for June. The figure below shows year-on-year change in monthly real sector confidence index values. Negative values indicate that sector confidence eroded compared to the previous year. The first point is that, despite there is confidence in the economy; the figures have been decreasing since August 2011. Despite the loss of confidence seemed to have ended in recent months, the trend continued with an increasing pace in June.

    Four of the subcomponents of the real sector confidence index are involved also in the leading composite indicators index released by the Central Bank. The leading index is important for it signals the turns in the level of economic activity. So, the index has the potential to indicate whether the period of slow growth, began moderately in the first quarter of 2011 and strengthened by the end of the year, has come to an end by the second quarter of 2012. The latest index figure is for May. Also, the mentioned subcomponents of the real sector confidence index for June give intuitions on the value of leading indicator. These subcomponents are export orders, employment, domestic order books and inventory of finished products. In June, each of these variables decreased in value both year-on-year and month-on-month. Moreover, this trend has been persisting for some period now.

    So, here is the moral of the story: We have new evidence that the second quarter will be no different than the first concerning growth performance. In other words, it is most likely that slow growth – zero or negative growth when adjusted to population growth – has pertained in the second quarter of the year.

    fft16 mf1015446
    Figure. Real sector confidence index, year-on-year difference: January 2008 – June 2012. Source: CBRT

    This commentary was published in Radikal daily on 28.06.2012