Turkey’s calendar-adjusted industrial production index contracted for a fifth consecutive month in January, data from national statistics office TUIK showed on March 14. However, the contraction of 7.3% y/y was lower than the revised 10% y/y recorded for December.

TUIK revised the index back to January 2015 for its latest data industrial output release. In response to growing criticism, on March 12 the statistics institute issued a written statement to explain why it used a USD/TRY rate of 4.82 in its latest GDP data release.

A Reuters poll had predicted that there would be a 7.55% y/y fall in the seasonally adjusted industrial output index for January.

Meanwhile, looking at the month on month data for recession-hit Turkey, the seasonally and calendar adjusted index turned to a positive 1% m/m in January. It was the first m/m positive figure seen since last July.

Moderation in weakness implied
Looking at the likely industrial performance in February, Turkey’s foreign trade figures implied that there was a prevailing weakness, but a moderation in that weakness, Ozlem Bayraktar Goksen of Tacirler Invest said in a research note.

Halk Yatirim expects a contraction of around 5% y/y in February’s industrial output, the Istanbul-based brokerage house said in a research note on the January data release.

“The stronger-than-expected Turkish industrial production data for January suggest that the worst of the recession has passed. That said, the recovery is likely to be slow-going and our forecast for GDP to contract by 2.5% over this year as a whole lies below the consensus… While the central bank is likely to embark on an easing cycle around the middle of the year, we think that the scope for interest rate cuts will be limited. Lingering problems in the banking sector mean that credit growth will stay subdued. And the global backdrop is likely to deteriorate,” Jason Tuvey of Capital Economics said in a research note.

It could be a little bit early to assume that the worst is over for the Turkish economy because there are questions over the sustainability of booming fiscal expenditures and an increase in public banks’ lending coupled with tax cuts in the run-up to the local polls to be held on March 31.

Government’s ‘worst is over’ line
However, if the market consensus buys the government’s ‘worst is over’ line, TUIK’s official data releases may fit neatly with it—at the risk of triggering further criticisms over perceived inconsistencies between the official data sets and what some market players regard as more reliable data series on real output, such as statistics on automotive or white goods production from trade associations.

Korkut Boratav, a highly regarded economics professor, told daily Cumhuriyet on March 13 that initial indicators suggested the GDP contraction has continued across the first quarter of 2019 at the same, or even at an escalating, pace compared to the last quarter of 2018.

The relative stability seen on the local financial markets was the only calm indicator, Boratav observed, adding that recent fluctuations in the value of the Turkish lira proved that the country could face negative surprises at any moment.

“Turkey’s GDP has now fallen 1.6% q/q in Q3 and 2.4% q/q in Q4. We have estimated that the kind of sudden stop Turkey saw last year historically implies a drop in GDP of 10% peak-to-trough, so this brings us about halfway,” Robin Brooks of the Institute of International Finance (IIF) said on March 11 in a tweet.

“In 2017 Turkey saw a credit boom that widened the current account deficit and left the country vulnerable to the 2018 EM sell-off. Another credit boom is now underway, this time driven by public banks. This boosts GDP, but it also delays needed adjustment,” Brooks added in another tweet.

Investors undeterred
Investors remained undeterred in the face of the confirmation of Turkey’s technical recession by the Q4 data release on March 11 and were still happy to pile into Turkish paper, Global Capital has reported.

Fitch Ratings on March 13 cut Turkey’s potential supply-side growth estimate for the next five years by 0.5pp to 4.3% due to the sharp external adjustment seen since last year's currency crisis. The collapse in the country’s investment-to-GDP ratio would result in significantly lower growth in the capital stock (and hence labour productivity) than Fitch has previously projected.

“The recent moderation in the Turkish lira as well as the weak domestic demand support the fall in consumer inflation, whereas cumulative cost pressures put a limit on better prospects,” the central bank said on March 13 in the minutes of its latest monetary policy committee meeting.

Also on January 14, data from the central bank showed that the Turkish private sector had obligations to repay $63.8bn in foreign-loan principal payments within one-year as of end-January. The figure stood at $70.5bn as of end-July, prior to the currency crash reaching its worst point in August, and it has followed a very gradual declining path since then.

On March 13, the Treasury said in a statement that it had sold €916.4mn worth of 1-year EUR-denominated domestic bills via direct sale to lenders.

Also on March 13, the Capital Markets Board of Turkey (SPK) provided some exemptions to debt instruments to be issued by Turkey’s sovereign wealth fund. The wealth fund is still more or less idle and is said to be seeking foreign loans. The latest amendment by the SPK may be a sign that the fund is gearing up to try its hand at issuing debt.

On March 12, ING Bank Turkey said in a stock market filing that banking watchdog BDDK had denied its application to distribute dividends from its TRY1.06bn worth of 2018 profit.