Economic recovery in the fourth quarter is probable; but it appears that the recovery, if any, will start at best in November.
At times, when I say “I will address this issue in my next commentary” but an important development takes place, I fail to keep my word. On Thursday I promised to write about the possible exchange rate movements and the response of the Central Bank; but I have to postpone it. Because industrial output figures for September released on Thursday came as a “surprise” for some analysts.
I wasn’t planning to write about industrial output figures. I skipped this also in the month before. But I want to discuss why the figures came as a “surprise.”
In September, industrial output increased year-on-year by 6.2 percent, compared to the year-on-year drop by 1.8 percent in August. The figures for September were considered as a “surprise” both because of it was beyond expectations and was preceded by the year-on-year drop in August. Let me quote from my comments on the figures for August: “Please don’t overrate the minus 1.5 percent. Year-on-year comparisons also depict monthly fluctuations in industrial output, anyway. What is important is that excluding monthly fluctuations, there has been a downward trend in industrial output since January 2011. This trend has become more visible recently, with figures for August alike.” By the way, please note that the minus 1.5 percent was revised as minus 1.8.
Yes, we should not overrate monthly fluctuations but focus on the main trend. In August was a long religious holiday whereas the holiday in 2011 was in September. This is one of the reasons why industrial output growth was negative in August but 6.2 percent in September.
As you might remember, statistics released before the industrial output figures indicated that August and September did not differ substantially in terms of the level of economic activity. Furthermore, October does not seem to be much different, either. For instance, data by the Turkish Exporters’ Assembly reveals that exports decreased in October, while non-gold exports increased in September. Capacity utilization statistics for October also denote a similar trend “if read correctly.” Of course, economic recovery in the fourth quarter is probable; but it appears that the recovery, if any, will start at best in November.
Quarterly figures give healthier results as they eliminate monthly fluctuations and reflect the main trend. The figure above shows the changes in industrial output compared to the same period in the previous year. Also, there are two arrows, showing the period when the output growth that started in the first quarter of 2011 began to slow down.
Output growth rate decreased from 14.4 percent to 2.8 percent in the first quarter of 2012. In the second and third quarters, output growth fluctuated to some extent. Please note that output growth rate in the third quarter is not much different than those in the first and the second quarters, as also shown by the direction of the arrow on the right. In a nutshell, “output growth rate hit the bottom at the beginning of the year and remained there until November.”
Figure 1. Year-on-year change in quarterly industrial output level: 2007 Q1 – 2012 Q3 (%). Source: TURKSTAT.
This commentary was published in Radikal daily on 10.11.2012
