Consumer saves the quarter, relatively speaking

TURKEY - In Brief 02 Sep 2019 by Murat Ucer

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The Turkish economy contracted by 1.5%, y/y, in the second quarter of the year (1.4%, WDA), which was less steep than both the consensus and our forecast had it. As a corollary, quarterly (or sequential) growth, at 1.2%, was also markedly better than our forecast (Graph 1). The key driver of our forecast error was private consumption, which contracted at a relatively modest pace of 1.2%, y/y, thanks to a relative rebound in the consumption of durable and semi-durable goods (Graph 2), and grew at a puzzlingly robust pace of 3%, q/q (Graph 3). We say puzzling, because as far as we could see, high-frequency indicators had given little sign of this sort of a rebound, consumer confidence remained generally depressed, the job market continued to weaken and the consumer continued to deleverage through the first half -- the latter as part of a trend that started as far back as in 2013 (Graph 4).Aside from this positive surprise from the consumer side though, the rest of the numbers seem broadly in line with expectations. Regarding other components of domestic demand, gross fixed capital formation contacted sharply by 22.8%, y/y, with construction investment slumping by almost 30% (which is the sharpest rate of decline since the beginning of the series), while machinery & equipment investment dropped by 16.5%, y/y. Government consumption expanded by some 3.3%, y/y, but this was not sufficient, of course, to stop total domestic demand from shaving off some 7.4 percentage points (pps) from overall growth. We had the exact opposite situation from the net foreign demand side, which contributed by 7.4 pps to overall growth, with exports rising by some 8% and imports shrinking by som...