There isn’t yet any strong sign of moderate economic recovery having started in the first quarter

I will make a pause on the series about the widening gap between Turkey’s FX liabilities and revenues as March figures for two important indicators were released yesterday: capacity utilization ratio (CUR) and real sector confidence index. Changes in CUR give insights about the changes in industrial output and thus growth performance. And changes in real sector confidence index help us understand the trends in private investments.

Not convincing

Annual growth rate of working day adjusted industrial output was an impressive 14.9 percent in the first quarter of 2011. It has been in decline since then. The rates were 2.7 percent and 0.9 percent in the first and in the last quarters of 2012. The latest figure is for January, according to which, industrial output increased by 1.3 percent in the period that covers November, December and January. This was the first signal that after the fourth quarter that recorded the lowest rate since 2011, the low-growth trend might have ceased in the first quarter of 2013.

Of course this was not enough alone. Other indicators also must convince us that a moderate recovery has begun. The CUR is an important indicator with this respect. Comparison of year-on-year growth rates demonstrate that CUR and industrial output move in harmony. Since the early 2012, CURs have been in year-on-year decline. The trend has become more evident in the second half of the year and is ongoing: CUR declined both in January and February compared to the year before. Yet, the rate of decline in February was lower compared to the second half of 2012 and January 2013. The latest figures indicate a year-on-year decline by 0.5 percent in March: lower compared to that in February, but still in the negatives.

Real sector confidence decreases marginally

The storyline is similar concerning the real sector confidence index: it started to decrease year-on-year in the last quarter of 2011. Unlike the industrial output and CUR figures, the erosion in real sector confidence halted in the last quarter of 2012. In the first two month of 2013 we observed a marginal recovery in real sector confidence.

According to the March figure released yesterday, however, the recovery was temporary: the index decreased marginally in March. Three-month averages reveal that the index was stagnant both in the last quarter of 2012 and the first quarter of 2013. In other words, though the erosion has ended, the confidence has not improved yet. The cold comfort is that expectations for the next three months have improved except for exports.

The moral of the story is that, there isn’t yet any strong sign of moderate economic recovery having started in the first quarter. This further impedes the Central Bank’s policy of limiting the credit growth rate. Will the Bank stick to this policy and increase reserve requirements? Time will tell.

This commentary was published in Radikal daily on 23.03.2013