CUR figures for January and February reveal that industrial output might increase to some degree in Q1/2013, after the worst quarter of 2012 with this respect.

February figures for two critical variables that inform us on the outlook of the Turkish economy were released last Friday. The first one is the capacity utilization ratio (CUR). In December, seasonally adjusted CUR increased month-on-month, which was read in support of economic recovery. If year-on-year change in the CUR was examined, however, the clear and deepening downwards trend in the ratio would have been identified. There is a close relationship between CUR and year-on-year changes in industrial output. In December, the latter decreased significantly. Yes, we should not take monthly fluctuations seriously. Nevertheless, output growth in the last quarter was lower compared to previous ones. In other words, industrial output changed in the direction that the correct interpretation of the CUR signaled in advance.

The second important indicator is the real sector confidence index. Released by the Central Bank, the index is among the key indicators of the corporate sector’s confidence in the economy, which is positively related with investment expenditures. In the first three quarters of 2012, investment expenditures decreased year-on-year by 5.9 percent. There probably was a similar development in the last quarter of the year. Of course, what matters now is the expected outlook for 2013.

Uncertainties concerning Europe have been in decline since September 2012. Those concerning the US went away largely on 31 December 2012. These have lowered global risks. Together with an upgrade on Turkey by the Fitch, these will probably create a positive attitude among the corporate sector towards the Turkish economy. Therefore, unless other indicators change adversely, confidence and thus investment appetite will probably increase. On the other hand, adverse developments in other areas are evidently probable. Take the recent developments in our surrounding region. In a case as such, the perception of the corporate sector will be critical for the changes in investment expenditures, one of the key factors determining the growth rate in 2013. Real sector confidence index declined year-on-year almost uninterruptedly from the late 2010 to December 2012. But the confidence in the economy recovered in December and January.

Here are the figures for February: CUR decreased year-on-year by 1 percent. Though the downwards trend prevails, this is the lowest rate of the last seven months. Real sector confidence index is 0.2 percent higher than it was in February 2012. Growth was limited, but at least the recovery in December and January was not reversed.

So, what do these figures imply? The growth performance was remarkably weak in the third quarter of 2012. Everyone was expecting limited recovery in the fourth, which turned out not to be the case. CUR figures for January and February reveal that industrial output might increase to some degree in the first quarter of 2013, after the worst quarter of 2012 with this respect. Confidence index value implies that the risk appetite of the corporate sector has been healing eventually, though slowly. Yet, the recovery is highly volatile. In the light of these, 4 percent growth target is still feasible, but it is worth noting that the optimistic scenario here is now far more dubious.

This commentary was published in Radikal daily on 26.02.2013