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报告摘要

Turkey Economic Monitor - October 2019 Summary

I. TAKING STOCK

Core Content

The Turkey Economic Monitor (TEM) analyzes the economic developments, policy responses, and future prospects of Turkey. It highlights the country's external and internal economic challenges and the measures taken to address them.

Key Economic Developments

External Adjustments: Turkey experienced significant external adjustments over the past year, including a decline in current account imbalances, reduced external debt of banks, and a recovery in portfolio flows. These developments have helped mitigate external vulnerabilities that had accumulated before the August 2018 currency shock.
Stable Lira: Despite bouts of currency volatility in 2019 Q2 and Q3, the Lira has shown more stability, partly due to supportive external conditions and agile policy responses.
Erosion of Reserves: Foreign exchange reserves have been eroded over the past two years, exposing Turkey to external market pressures (EMP).

Real Sector Challenges

Investment Decline: Investment has significantly decreased, contracting for four quarters in a row until 2019 Q2. Industrial production indicates a weak turnaround.
Inflation: Inflation has begun to decline, averaging 17% in the first three quarters of 2019. The gap between producer price index (PPI) and consumer price index (CPI) inflation has narrowed.
Impact on Households: Rising unemployment and declining purchasing power have hurt households. Turkey lost around 840,000 jobs between May 2018 and May 2019, with the unemployment rate increasing from 10.6% to 14%. Real wages declined by 2.6% during the same period, disproportionately affecting the poorest households.

Corporate Sector Issues

High Debt Burden: Corporate debt remains high, with total credit to corporates at 68% of GDP (63% excluding import payables) as of June 2019. Two-thirds of corporate debt is in foreign currency, with SMEs being more vulnerable due to limited access to FX loans.
Liquidity and Solvency Pressures: Interest coverage ratios have fallen, with some listed companies reaching critical thresholds. Non-performing loans (NPLs) increased from 3% to 4.7% between September 2018 and September 2019, and are expected to rise further to over 6%.
Credit Rationing: Credit rationing affects SMEs more than larger firms, especially during cyclical downturns.

Banking Sector Adjustments

Deleveraging: Banks have deleveraged to cope with worsening balance sheets, with a decline in external liabilities and an improvement in loan to deposit ratios.
Asset Quality: Asset quality in the banking sector has deteriorated, with Stage 2 loans (high credit risk) increasing to 12% of outstanding credit. The lack of implementation guidelines for new accounting standards has created inconsistencies.
FX Management: Banks have used FX swap operations to manage currency risk, and their long FX positions help in this regard.

Policy Responses

Monetary Policy: The Central Bank has maintained a tight monetary policy since September 2018, which has helped stabilize the Lira and reduce inflationary pressures.
Fiscal Policy: Countercyclical fiscal policies have been implemented, including increased household transfers and ad hoc tax cuts, to support the economy and cushion the impact of job losses.
Coordination and Communication: Despite some progress, there is room for improvement in policy coordination and communication, especially in the context of government reorganization.

II. LOOKING AHEAD

Recovery Outlook

GDP Projection: The TEM projects no change in GDP for 2019 and a gradual medium-term recovery, with risks tilted to the downside.
Consumption Recovery: Medium-term growth is expected to be driven by a continued recovery in consumption.
Inflation and Poverty: Inflation is projected to fall to high single digits, while poverty is expected to increase in 2019 before declining gradually over the forecast period.

Key Challenges

Uncertainty and Investor Confidence: The pace and sustainability of recovery depend on reducing economic uncertainty and restoring investor confidence.
External Vulnerabilities: Turkey remains vulnerable to external market pressures, particularly if foreign flows remain speculative. Strengthening external buffers is crucial.
Debt Overhang: Corporate debt overhang is expected to be a drag on private investment in the medium term.

Policy Recommendations

Monetary Policy: Tight monetary policy is essential to reduce risk premia and strengthen external buffers. However, it must balance against the risk of exacerbating financial instability.
Fiscal Policy: Effective use of fiscal space through targeted and time-bound transfers is important. The composition of fiscal stimulus should be focused on supporting vulnerable groups.
Financial Sector Reform: An independent Asset Quality Review in the banking sector, supported by international expertise, could help build market confidence and improve asset management.

Institutional and Regulatory Considerations

Policy Uncertainty: The increase in regulatory changes has raised economic policy uncertainty. Most changes occurred in labor, finance, environment, and trade areas.
Business Regulation: The use of discretionary legal instruments has contributed to uncertainty. Strengthening policy transparency and predictability is key to attracting investment.

Key Figures and Tables

Figure 1: Turkey experienced a sudden stop in capital flows in 2018 Q3.
Figure 2: EMP index rose above critical threshold in August 2018.
Figure 3: EMP driven by exchange rate and reserves.
Figure 4: Turkey is one of the few EMDEs to face EMP in recent years.
Figure 5: Sharp decline in current account imbalances.
Figure 6: Acceleration in portfolio inflows.
Figure 7: Large drop in banks' external debt.
Figure 8: Decline in external financing requirement.
Figure 9: Reduced currency sensitivity to capital flows.
Figure 10: More stable Lira in recent months.
Figure 11: Bullish sentiment towards EMDEs.
Figure 12: General recovery in portfolio flows.
Figure 13: Declining industrial activity.
Figure 14: Particularly in developed markets.
Figure 15: Economic situation and expectations index turned negative.
Figure 16: Rising EMDE currency volatility.
Figure 17: EMDE bond spreads falling.
Figure 18: Some decline in EMDE portfolio flows.
Figure 19: Drop in net reserves in 2019 H1.
Figure 20: Reserves below prudential levels.
Figure 21: Reserves low compared to other EMDEs.
Figure 22: Domestic FX deposits provide some buffer.
Figure 23: One quarter of GIR held in gold.
Figure 24: Drop driven by reduction of ROM usage.
Figure 25: Economy entered recession in 2018 H2.
Figure 26: Gradual consumption-led recovery in 2019 H1.
Figure 27: Expansion in services.
Figure 28: Weak turnaround in industry.
Figure 29: Some recovery in recent months.
Figure 30: Led by the tradable sector.
Figure 31: Gradual disinflation.
Figure 32: Sharp increase in transport costs.
Figure 33: Divergence with international food prices.
Figure 34: Unprocessed food inflation very high.
Figure 35: Pass-through to consumer prices increased.
Figure 36: Exchange rate pass-through to PPI.
Figure 37: Less pass-through to CPI in this round.
Figure 38: Linked to downturn and currency recovery.
Figure 39: Declining CPI and PPI gap driven by energy.
Figure 40: Also declining food prices.
Figure 41: PPI inflation peaked in September 2018.
Figure 42: Driven by intermediate goods.
Figure 43: From selected manufacturing industries.
Figure 44: Highly import-dependent sectors.
Figure 45: Energy prices major drivers of PPI.
Figure 46: FX developments more impactful than international prices.
Figure 47: Job losses in the economy.
Figure 48: Unemployment rate rises.
Figure 49: Biggest job losses in construction and agriculture.
Figure 50: Not the biggest employers.
Figure 51: Declining real wages.
Figure 52: Affects all education backgrounds.
Figure 53: Services and agriculture most affected.
Figure 54: Steepest drop among higher wage earners.
Figure 55: Minimum wage adjustment in January 2019.
Figure 56: Helped offset some decline.
Figure 57: Slight decline in corporate debt/GDP.
Figure 58: Slowdown in debt accumulation.
Figure 59: Credit to GDP gap drops.
Figure 60: Corporate debt burden remains high.
Figure 61: TL commercial lending declined.
Figure 62: Net FX position of corporates declined.
Figure 63: SME investment rate sensitive to global conditions.
Figure 64: SME bank leverage dropped post-2013.
Figure 65: SME profitability dropped post-2013.
Figure 66: Increased external bond issuances.
Figure 67: Domestic bond issuances.
Figure 68: Eurobond issuances for refinancing.
Figure 69: Higher rollover rates.
Figure 70: Turkish traded companies more leveraged.
Figure 71: Solvency pressures.
Figure 72: Elevated corporate vulnerability.
Figure 73: Surge in bad checks.
Figure 74: Outstanding loans exceed US$450 billion.
Figure 75: NPLs rise particularly in private banks.
Figure 76: Large corporates restructure debt.
Figure 77: Stage 2 loans continue to rise.
Figure 78: Large maturity mismatches.
Figure 79: Currency mismatches.
Figure 80: Banks reduce external liabilities.
Figure 81: Liquid assets sufficient to cover short-term FX liabilities.
Figure 82: Credit growth drops sharply.
Figure 83: Improved loan to deposit ratios.
Figure 84: Rising fiscal imbalances.
Figure 85: Increasingly financed through external debt.
Figure 86: Real income tax collections dropped sharply.
Figure 87: Consumption tax buoyancy also fell.
Figure 88: Spending consolidation driven by investments.
Figure 89: Creating space for household transfers.
Figure 90: Public procurement is large.
Figure 91: Most contacts procured competitively.
Figure 92: Procurement shifted towards works.
Figure 93: Increasingly towards municipalities.
Figure 94: Increase in domestic bidders' price advantage.
Figure 95: Turkish firms account for the largest share of contracts.
Figure 96: Social Assistance Expenditure over time.
Figure 97: Business-friendly legal and regulatory environment.
Figure 98: Turkey has the lowest regulatory governance score.
Figure 99: Hierarchy of legal instruments.
Figure 100: Big increase in rule changes.
Figure 101: Discretionary instruments increased.
Figure 102: More frequent regulatory changes.
Figure 103: Most changes in labor market regulations.
Figure 104: Legal instruments focus on different areas.
Figure 105: Global growth projected to slow.
Figure 106: Increased market volatility in EMDEs.
Figure 107: 2019 forecasts converging.
Figure 108: Slight consensus for 2020, but variance remains.
Figure 109: GIR close to financing requirements.
Figure 110: External reserves not at critical levels.
Figure 111: Strongest leading indicators of EMP in Turkey.
Figure 112: Relatively high credit to private sector.
Figure 113: Households debt is low.
Figure 114: Corporate debt is high.
Figure 115: Some signs of deleveraging.
Figure 116: Debt burden remains high.
Figure 117: Access to alternative finance is low.
Figure 118: Debt overhang increases across firm sizes.
Figure 119: Driven by rising debt stock relative to earnings.
Figure 120: Construction and energy show biggest earnings to debt drop.
Figure 121: Within manufacturing, large employers have highest debt overhang.
Figure 122: Turkey has relatively low debt.
Figure 123: Fiscal imbalances grew recently.
Figure 124: Due to procyclical policies in 2017.
Figure 125: Fiscal discipline helped build buffers.
Figure 126: High risk premia.
Figure 127: Borrowing costs constrain fiscal space.
Figure 128: Macro shocks would expand the deficit.
Figure 129: Raise gross borrowing requirements.
Figure 130: Due to cyclical drop in revenues.
Figure 131: Increased fiscal outlays.
Figure 132: Creating liquidity pressures.
Figure 133: Solvency concerns.
Figure 134: Public consumption shock has a positive but not significant impact on growth.
Figure 135: Public transfers shock has a positive and significant impact on growth.

Key Tables

Table 1: Income sources across deciles.
Table 2: Sector of Employment, by decile.
Table 3: Employment status and formality, by decile.
Table 4: Fiscal aggregates (2018 H1 - 2019 H1).
Table 5: Early warning indicator results.
Table 6: VAR Analysis: Sign restrictions.

Conclusion

Turkey's economic recovery is contingent on reducing uncertainty, restoring investor confidence, and strengthening external buffers. While monetary and fiscal policies have provided some stability, there is still room for improvement in policy coordination, transparency, and the effective use of fiscal space to support vulnerable sectors.

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