The 2021 growth figures announced yesterday are far behind. Even before the start of the Ukraine War, the government’s loss of control on the inflation side and the severe price hikes had begun to slow down the domestic demand in Turkey. While export growth has slowed (with demand gradually normalizing after the pandemic), the Ukraine War is now adding a whole new cycle of slowdowns.
The PMI data announced today is also important in terms of reflecting this loss of momentum. From the details of the data, it is possible to predict that the Turkish economy will enter a contraction process somewhere between the first and second quarters of the year.
On the other hand, the historical bottom of BloombergHT’s Consumer Confidence Index supports this expectation.
What does PMI say?
The headline PMI, which was recorded as 50.5 in January, was 50.4 in February. The reason for getting very close to the 50.0 contraction zone is the slowdown in production due to energy cuts and the loss of strength in total new orders despite the growth in exports. The good news is that employment growth continues due to backlog orders. But before the energy hikes and cuts, the level of PMI in January shows that things are not going well in terms of growth.
It is noteworthy that total new orders slowed for the fifth month in a row as price increases and market uncertainty deter customers. Another important PMI detail is about the inflation side and explains that price pressures continue.
Input costs continued to rise sharply in February, driven by increases in raw material, energy and transport prices, as well as wages. The depreciation of TL also contributed to this rise. In particular, as a reflection of the rise in energy and raw material costs, companies increased their sales prices significantly. However, both input costs and final product price inflation continued to lose momentum compared to late 2021 levels.
What does the collapse in the Consumer Confidence Index say?
Bloomberg HT Consumer Confidence Index decreased by 14.86% in February compared to the previous month and was announced as 45.32.
Due to the current economic situation, which stands out in the details of the index, there is a decline in the consumer’s perception of the current situation, their expectations for the future, and their consumption tendency. The decline in purchasing power that comes with very high inflation, as well as the shock in energy prices, are the reasons for the sharp pullback in consumer confidence.
In either case, not expecting change should explain that it will not be easy to recover in consumer confidence. The Ukrainian War cannot be expected to enter the February index. Therefore, the impact of this shock on energy prices will be felt by the consumers in Turkey quickly. A further deterioration in Consumer Confidence is possible.