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Author Topic: Turkish Economy Decline: Big CA Deficit -5,3% GDP Fall. Swaps' Yields Costs rise  (Read 7600 times)
JohnsonE
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« on: December 09, 2012, 02:24:27 PM »

 

Quote
- "As Goldman Predicts DECLINE" in Turkish economy => "Sell (Turkish) Lira !" says HSBC, according to Bloomberg's latest headlines.

 - "The Cost of insuring Turkish Debt against Currency Losses is Rising", according to "Global Banks, including Goldman Sachs Group Inc. (GS), HSBC Holdings Plc (HSBA) and Credit Agricole SA predictions", it observes from the outset.

F.ex., "1 Year currency Swaps on the (Turkish) lira ... rose +14 basis points, since Dec. 4". (It is "used to Protect foreign Investors switching from dollars to buy Turkish bonds"). Thus, Turkey had "one of the most Expensive Currencies.. among 19 .. emerging markets this year", Bloomberg concluded.

Turkish Economy will sharply Fall Down for - 5.3% Less GDP this year from what it was in 2011, (i.e. from 8.5% to 3.2%, artificially maintained by dangerous short-term foreign credit, as Simon and Poors earlier revealed).

-“We expect short-term Depreciation...,” Guillaume Tresca, senior emerging- market strategist at Credit Agricole in Paris, said in e-mailed comments yesterday. The French bank Cut its forecast for the lira to 1.83 a dollar by March from 1.74, he said, citing ...“the Threat of rate cuts"..
Already, "the (Turkish) Lira Plunged - 18 %  against the Dollar in 2011, (after Basci cut his benchmark rate to a record low 5.75 percent in August)é"...

"Goldman Sachs forecasts ...see the (Turkish) lira Weakening in three months to 1.90 "...
The lira is “the world’s most overvalued currency” and “Investors need to recognize that at some stage they are likely to face Losses on  their Investments,”
a report from the Peterson Institute for International Economics in Washington said on Nov. 30.

- “Turkey’s situation has this element of Precariousness hanging over it.”


Peterson Institute Chairman Peter G. Peterson is co-founder of the Blackstone Group (BX) and was secretary of commerce under President Richard Nixon.

"... The (Turkish) Deficit ... was ... $ 77.1 Billion last year (2011), when Turkey had the Second-Biggest Deficit in the World, behind the U.S." !!..

The Shortfall may equal -6.3 % of GDP by year-end, according to the average of 15 economist estimates on Bloomberg. (That compares with ... a Surplus of + 4.5 %for .. Russia). 

 "Turkey’s economy ...pushed Yields on two-year notes ...524 basis points this year. ....(In) Brazil ...Yields fell 310 basis points".

"Bond Risk"

"Five-year Credit-Default Swaps on Turkey were ..at 126 today. That compares with ...109 for Brazil".

("...prices show ...Perceptions for a Borrower’s Creditworthiness : ...Gains indicate the Reverse").

"The Extra Yield investors demand to hold Turkish Debt denominated in dollars rather than U.S. Treasuries, ...(was) 385 (points) at the end of last year, and compares with 189 for Russia, ...and 228 for emerging-market countries in Europe."

- “The Turkish economy still has some Problems, such as the Large current-account Deficit, which undoubtedly is Negative for the lira,” Stanislava Pravdova, an analyst at Copenhagen-based Danske Bank A/S (DANSKE), said in e-mailed comments yesterday. “We will basically keep our Bearish view on the (Turkish) lira.” 

http://www.bloomberg.com/news/2012-12-07/hsbc-says-sell-lira-as-goldman-predicts-decline-turkey-credit.html


« Last Edit: December 09, 2012, 02:37:28 PM by JohnsonE » Logged
Breadman
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« Reply #1 on: December 10, 2012, 06:43:32 AM »

EU Commission's Annual 2012 Report on Turkey already had much more Warnings about not only the "Decline" of the Turkish Economy, as you noted, but even on Looming Risks for a Sudden Crisis of a Vulnerable Turkish financial contradictions and dangerous structural Weaknesses, (apparently maintained until now only by artificial means) :

Quote
- "Turkey has large external Imbalances, and remains Vulnerable to further global financial Shocks, in particular capital flow Reversals".

- "the Fragmentation of responsibilities between government bodies appears to be
increasingly Complicating coordination for budgeting and medium-term economic policy making. Decisions are sometimes taken on an ad hoc basis and impact assessments are either Lacking or based on Partial information", ("as more ministries and governing structures have been created", meanwhile, i.e. augmenting Bureaucracy)..

 - "In 2011, the Turkish economy" slowed "slightly Down" - 0,7% less GDP, compared to 2010, but it was mainly "Domestic Demand (which led to Import volumes increasing 10.6% on the year, while the level of Export volumes was (only) 6.5% higher than in 2010", i.e. resulted in a further Deterioration of Trade Deficit for - 4% worse, (See below).

- Meanwhile, "the Turkish Lira was Depreciated by - 20% vis  a vis the €uro in 2011".

- "Since mid-2011, ... the pace of Growth has been Slowing Down gradually, in line
with the Slowdown in domestic demand....A major growth Deceleration was observed in the first half of 2012, (down) to 3.1% year-on-year", i.e. a Drop of -5,3% in Turkish GDP compared to last year !

- "Fixed Investment Decreased by -3.2%", during the first half of 2012.

- "Private Domestic Consumption (residents Households), which accounts for over 70% of GDP, was down by -0.2% year-on-year in the first six months of 2012",

so that, => "the only domestic demand component that posted above-average growth was Government Consumption".

>>> In plain language : the Turkish Economy is artificially kept out of a looming Crisis, thanks only to EU Taxpayers' Money, (i.e. more than about 1 Billion € each Year !), distributed in full EU Grants to Ankara under pretext of its notoriously unpopular EU "accession" claims...         

- "A further Deceleration is already being witnessed to some extent in leading indicator data. Surveys of Manufacturing business confidence and capacity Utilisation have recently Fallen back to their Weakest levels in two years".

=> -"Overall, economic Growth is Slowing Down" in Turkey, "due to Weaker domestic demand", (which was the only "driver" in the recent Past).

- "In 2011, the Per Capita GDP of Turkey (PPP adjusted) amounted to 52% of the EU
average", (and it's obviously due to Fall even Lower during 2012).

- "The current Account Deficit rose from 6.6% of GDP in 2010 to 10% in 2011. The increase was entirely due to the Deterioration of the merchandise trade Deficit. In 2012, Turkey continued to run a Large current account Deficit, which leaves the Turkish currency Vulnerable to a sudden Loss of investor Confidence", EU Commission warned.

+ Moreover, "an expected Deterioration in External economic conditions may make the increase in Export earnings Difficult to sustain".

- "Capital inflows... during 2011 and the first half year of 2012, ...were significantly Lower than a year earlier". In addition, they didn't correspond so much to Productive, Industrial investment, but rather on Foreign purchases of (Turkish) Government Bonds  ..., and Foreign Lending ...)" , mainly in order to "offset the current account Deficit".

Indeed, "at the same time, foreign Direct Investment remains Low, proportionally to the size of the current account Deficit, at Only 13% of Total capital inflows over the first six months of 2012".

=> In consequence, "Turkey’s large Dependence on Shorter-term Capital, makes it highly Susceptible to the current Global Uncertainties", EU Commission warned.

- "The Central Bank’s official Reserves Decreased from € 61 billion in 2010 to € 56 billion in 2011", (i.e. - 5 Billions € less), while, "at the same time", on the contrary, "gross External Debt" practicaly remained at almost 40% of GDP.

- Turkish "Unemployment was 9,8% in 2011", while "the Labour Participation rate is ... as Low as (only) 30% for Women". But, "despite the Low proportion of the female population actively looking for work, the female Unemployment rate is slightly Higher than the male unemployment rate. In addition, about one third of women who are considered as "employed" are Unpaid family workers in the Agricultural sector. This Reduces the percentage of Women of working age who are Employed and receive an income to Less than 15% of the total" !

"Lack of affordable child care is among key Barriers for women’s entry into the labour market".

- The Turkish "Labour market Needs to absorb the Unemployed, and about one Million New entrants Every year. Overly strict employment protection laws Discourage employers from hiring. The prevalence of Undeclared work remains a major Challenge".
-----------------------

- "Inflation (in Turkey) was ...+10.5% in 2011, almost Doubling from 6.4% in 2010 and the official target of 5.5%", EU Commission denounnced, pointing on "highly Volatile Energy and Food Prices", and particularly on "rapidly Rising Food Prices".

=> In consequence, "Concerns about the level of Inflation, and the Vulnerability of the (Turkish) Lira to heightened global Risk aversion, owing to Turkey’s still large current account Deficit, have continued to pose Obstacles to...Monetary policy" :

- Thus, "the (Turkish) Central Bank has been compelled to sustain a Tightening bias over the past half year". And, "given the Inflation volatility and the current Weakness of the (Turkish) Lira (alongside most emerging market currencies) ..., Tight monetary policy needs to persist" in Turkey, according to EU Experts. 

-------------
- But, in Turkish "Public Financial Management Law, some components are still Missing, in particular measures to enhance the Accountability, efficiency and Transparency of the Budgeting process. Consolidated general government accounts according to international accounting standards are still Not regularly Published. This makes it Difficult for citizens to hold the Government Accountable for its Management of Public Money. Full Implementation of the new Law on State Aid has been Postponed. ...Overall, No efforts were made to increase fiscal Transparency", EU denounced.

=> In consequence, "a Sudden Reduction or Reversal of (External, f.ex. EU) Capital Flows could put Pressure on the (Turkish) Lira, resulting in higher Inflation. ...Overall, ... the Turkish economy remains Vulnerable to bouts of Financial Uncertainty and the global Risk Sentiment", EU warned Ankara.
-----------------

+ Meanwhile, in addition, "the (Turkish) Government increasingly Interferes and independently Sets Prices, thereby Suspending automatic (Market) mechanisms".

At the same time, "there has been Limited progress in the Restructuring and Transparency of State-owned Enterprises. The pace of Privatisation Slowed Down significantly, chiefly due to investors’ Difficulties in gaining access to Long-term external Financing"

"As a result, tenders for 2 electricity distribution companies remained Inconclusive. Deadlines and procedures for various Tenders, including the natural Gas tender, were Extended. Total Privatisation receipts Decreased from € 2.2 Billion in 2010 (0.4% of GDP) to € 971 Million (0.2% of GDP) in 2011", (i.e. -250% Lower)...
-------------------

Moreover, "starting a business in Turkey remains Costly, and corresponds to 11.2% of per capita income. Some fees are still Not Transparent, such as those for the official registration of a company’s articles and accounts. Trade registry Fees are significant. Progress in removing exit Barriers remains Weak.
                                                                                                                                                                                                                                                       Closing a business is still Expensive and Time-Consuming. Insolvency procedures take about 3.3 Years and recovery rates — at 22% on average — remain very Low. Registering a property in Turkey Costs 3.3% of its value, requires 6 separate Procedures and takes 6 Days. Obtaining a construction Permit is Expensive and Time-Consuming: on average it takes 24 procedures and 189 Days" (sic !). Costs correspond to almost 200% of the average per Capita Income. Overall, ...while market exit remains Costly and Long, and insolvency Proceedings are still Heavy and Inefficient"...

+ Moreover, "Enforcement of commercial Contracts is still a rather Lengthy process, involving 36 procedures and taking an average of 420 Days (!). Commercial court judges Lack specialisation, which results in Lengthy court Proceedings.. Overall, .... No Progress has been observed" in the Turkish "Legal System"..
-------------------------

On the Turkish "Financial sector", "there was No Progress in the Privatisation of state-owned Banks, planned a long time ago. The share of the Insurance sector remained Small and Underdeveloped, with 3% of the total financial sector. Largely in tandem with the growth performance, Credit expansion Slowed Down gradually, from about 40% year-on-year in mid- 2010, to about 12% by mid-2012", (i.e. a Drop of -28% !). .... The value of outstanding Debt
instruments traded in the bond market amounted to about 40% of GDP. Private Debt issues Increased significantly, from 1.3% of the total equity market in 2011 to 4.1% in mid-2012", (i.e. a + 2,8% aggravation).
-----------------------

 => In overall,, "the rapid expansion of the current account Deficit, and strong Inflationary Pressures, point to the Return of significant Imbalances in the Turkish economy", EU Commission warned.

-----------------
+ Meanwhile, even in workforce Education, "Challenges have remained substantial. Participation in Higher education remains Low by international standards and... the vast Majority of Turkish Students display Low proficiency levels in basic skills and problem-solving", and " Roll Eyes

- "Actual outcomes remain much Lower", than "the (EU) target of 2% of GDP on Research and Development", "given that", in Turkey, "R&D expenditure amounted to just 0.84% of GDP in 2010 (latest available data)", (i.e. Less than Half of EU's Minimum)..

In addition, "No extra (Electric) Power generating capacity has been Built" in Turkey. "Modest progress was made in the upgrading of infrastructure. Overall, improvements in the country’s physical capital have been Modest".

"No tangible progress can be reported on reducing BOTAS’ (Gas) Monopolistic market share, while attempts to replace the terminated contract with the Russian Federation by contracts with the private sector remained Unsuccessful".
---------------
- "Fewer jobs were created in services and industry, whose share in total employment went Down to 48% and 19.5% respectively in 2011".
--------------------------
- Turkish "unit Labour Costs appear to have Increased at a slightly Faster pace than labour productivity in 2011 and the first half year of 2012. Labour Costs went Up in 2011 by +10.2% for the whole economy, by +9.1% in Manufacturing, and by +14.1% in the Construction sector. Conversely, the non-wage Labour Cost index, which shows social security contributions and severance payments per hour,Increased by +9.1%".

+ At the same time, "the Turkish Lira Depreciated vis-à-vis the €uro by -20% and against the US dollar by -23.3% in 2011. The real effective exchange rate (against a basket of 50% US dollar and 50% euro) also Decreased in 2011 by about -15% (the CPI-based REER index Decreased from 125.7 in 2010 to 109.5 in 2011", i.e. -16,2)".

---------------

- "EU’s share of Turkey’s total Trade Decreased from 41.7% in 2010 to 40.8% in 2011. Between 2010 and 2011, the EU share of Turkey’s exports remained stable at 46%, while its import share Decreased from 42.6% to 41.7%. However, first half of 2012 data indicate that shares have been Falling due to a weakening of EU demand. The EU continued to be the main source of FDI inflows to Turkey, albeit with a Falling share,... as FDI from Non-EU countries Increased More than from the EU", observed EU Experts, pointig at a increasingly Non-European orientation of Turkey....
---------------

Moreover, "No progress can be reported on capital movements and payments" :

- "Although the eligibility list is Not Public, it seems that Restrictions remain for Greek citizens in coastal regions and in Istanbul, for Bulgarian citizens in the Turkish Bulgarian border provinces, as well as for Cypriot citizens. Turkey’s legislative framework in this area is Not in line with Article 63 of the EU Treaty...  Turkey still Needs to adopt an action plan for gradually Liberalising the Acquisition of Real Estate by Foreigners, in line with the (EU) acquis". "Restrictions on foreign ownership persist in radio and TV broadcasting, transport, education, and the privatisation of electricity distribution and generation assets3. Therefore, Considerable efforts are Needed to align the current legal framework on capital movements and payments with the EU acquis.

Worse : - "No progress can be reported in payment systems" :

- In particular, "Limited progress has been made on alignment with the acquis in the fight against "Money Laundering". A draft law on the prevention of the Financing of Terrorism .... has Not been adopted yet.

=> "The (International) Financial Action Task Force (FATF) therefore decided to keep Turkey on the List of jurisdictions with strategic Anti-Money Laundering/Combatting the Financing of Terrorism (AML/CFT) Deficiencies" !

- "Particular Deficiencies identified by the FATF are the Lack of Criminalisation of Financing of Terrorism, and the Inadequate legal framework for Identifying and Freezing Terrorist Assets".

=> "In its public statement in June 2012 the FATF noted that ...Turkey has Not made sufficient progress in implementing its action plan and certain strategic CFT Deficiencies remain.  ...."Results with regard to convictions, confiscations, seizures and freezing of assets remain Limited.

+ "Turkey has Not Ratified the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime, and on the Financing of Terrorism (CETS 198)"

Conclusion

"Limited progress has been made in the area of free movement of capital. Restrictions on
capital movements remain in place in a number of sectors, including on direct investments originating from the EU".

"Enforcement capacity against "Money Laundering" and Financing of Terrorism Needs to be improved. The legal framework to combat financing of terrorism remains Incomplete and further, Urgent efforts are needed as regards alignment with the (EU) acquis and the relevant FATF recommendations", (see above).

=> In consequence, "the (International Grouping) FATF Urged Turkey to address these Deficiencies, and announced that it would Call upon its Members to apply Counter-Measures, proportionate to the Risks associated with Turkey if it does not take significant action by October 2012". ....
-------------------------------
« Last Edit: December 10, 2012, 06:55:53 AM by Breadman » Logged
JohnsonE
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« Reply #2 on: February 04, 2013, 03:33:37 AM »

Turkey Trade Deficit - 84 Billions $/Year (46,2%) despite Lira's -20% Depreciation...

The Deficit in Turkey's foreign Trade persisted during 2012, reaching about  - 84 Billions $ per year.
One year ago, the Turkish Deficit was 77,1 Billions $ for 2011, ("when Turkey had the Second-Biggest Deficit in the World, behind the U.S."), according to a previous Bloomberg report.

For 2012, the Cost of almost Half (46,2 %) of Imports in Turkey are still not covered by Exports, despite a Depreciation of - 20% of Turkish Lira vis a vis the €uro, and - 23,3% vis a vis the Dollar, on 2011.

Turkey's continued Large current account Deficit, leaves its Currency Vulnerable to a sudden Loss of investor Confidence", EU Commission's latest Report has warned.

Nevertheless, there is also a sharp Fall of Imports from EU, USA and other Countries around the World, which droped Down - 3,7 % during last Month (December 2012), due to Weaker Turkish Demand because of Austerity Measures, Inflation, Unemployment, a decrease of Central Bank's reserves, and a growing Crisis on Foreign Debt, dangerously based mainly on Short Term Loans, as Simon & Poors have revealed.
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JohnsonE
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« Reply #3 on: February 18, 2013, 04:53:24 AM »



Falling GDP growth's Downward trend in Turkey dropped Lower than expected on 2012 :

The recent U-turn in Turkey's GDP trend towards sharply Falling Downwards (See previous publications here+), droped even Lower than expected on 2012, where, instead of the +8,5% GDP of 2011, Turkey got even less than the +3,2% initially expected : only +2,5%, (i.e. representing an abrupt Drop of - 6 % GDP growth Less, (Losing about - 70,2% of what it was before !)  in just one year ...

This Aggravation was provoked while the Turkish Central Bank was making Desperate Attempts to limit Ankara's huge External Trade Deficit by pushing "High Borrowing Costs, in the first three quarters of 2012, to combat Inflation and Dampen domestic spending on Imports" (f.ex. from the EU, etc), which are reportedly "already Slowing".

Meanwhile, Turkish Exports on 2012 included Exceptional Gold trade to Iran, (Teheran's Islamist Government having bought some 11 Billions in Gold through Turkey last year, notoriously as a way to bypass the International Sanctions), which, according to Turkey's Economy Minister Zafer Caglayan, is "expected to Decrease in 2013", (i.e. relaunching the Turkey's External Trade Deficit problem).
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