A macro update (or, enjoy it while it lasts!)
With our weekly on holiday, we thought a brief update on the recent data releases could prove useful.
The economy is looking more stagflationary: activity and employment have both stalled, yet inflation has hardly budged from 30%+ levels. Disgruntlement in the business community is growing, too, though we don't think we have reached an "enough is enough" political tipping point — for now.
There is little progress on the disinflation front, notwithstanding the rosy picture the CBRT continues to paint, as witnessed most recently at the launch of this year's third Inflation Report. That said, there appears to be a tacit consensus among analysts that the Bank's real focus is squarely on "financial stability" — or, more specifically, on reserves and the TL deposit ratio — rather than on disinflation.
Helped by the relative improvement in reserves in recent weeks, the consensus now expects the CBRT to lower the funding rate toward 37% in the coming weeks, a message we thought was quite evident during the Inflation Report presentation. We still don't see the policy rate ending the year below 37%, however, as we think the pace of USD/TL depreciation may accelerate further in the coming months.
The central government budget deficit widened in July, which is not too surprising, but performance through the first half points to a relatively benign deficit for the year as a whole.
External trade — and, as a result, the current account deficit — has been faring better than we expected since April, despite considerable volatility in the data. Even so, there is little room for complacency, and the external accounts need close monitoring against a still-tricky backdrop of elevated energy prices, a more protectionist world, a relatively strong TL and a mixed external financing picture.
On that last point, the CBRT introduced relatively significant revisions to the balance of payments statistics, which led to a material reduction in net errors and omissions. Welcome as this is, we think the big picture is little changed, with unidentified outflows still sizeable over the past two years or so.
Expectations in the CBRT Participant Survey are little changed over the past few months, but this is bad news of sorts: they point to a permanent deterioration in the macro outlook relative to earlier this year, in line with what we have been arguing for some time.
Now read on...
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