Eventually, of course, we should see the devaluation of the Lira produce a J-curve upswing in trade flows, but for December, exports rose only 4.5% yoy, on a monthly movement which was 1SD below seasonal historic trends, whilst imports rose 16.7% yoy, which was 0.1SDs above historic trends.
In fact, private sector liquidity trends are probably slightly worse than the current account deficit trends suggest, since the total savings/investment balance is actually being improved by 4Q fiscal restraint in Turkey. In every month in 4Q, the government’s total domestic debt actually fell slightly, in all by L4.939bn, which in theory should have moderated the decline in the current account deficit. So the Turkey’s private sector savings position was in deficit to the tune of L36.9bn in 4Q, equivalent to an estimated 9.4% of 4Q GDP, and taking the 2013 private sector savings deficit to 6.9% of GDP. This deficit expanded throughout 2013, and compares to 4.9% in 2012.
The private sector savings deficit is, of course, a key measure of the cashflow position between Turkey’s private sector and its financial system: in this case, we can see that somehow the financial system must either generate enough cashflow to keep the private sector’s activities unchanged – by selling government bonds or by taking on foreign liabilities – or alternatively the private sector’s activities need to change in order to curb its net demand for cash.
The balance sheet of Turkey's banks shows clearly enough how the private savings deficit has been financed. In the year to Dec, banks' loan books grew 32.9% yoy, or by and amount equivalent to approximately 14.4% of GDP, but also equivalent to about 170% of estimated nominal GDP growth in 2013. The stock of bank debt at end-2013 was approximately 58.2% of GDP, up from 47.9% at end-2012. December's figures, incidentally, show no sign of any slowdown in lending momentum. Meanwhile, deposits grew only 21.7% yoy in 2013, so the loan/deposit ratio was pushed up to 103.1% by end-2013.
Turkey's banks financed this in the way one would expect: net foreign liabilities of Turkey's banks grew by US$22bn in 2013, almost doubling to US$5.58bn. At the same time, the amount of securities held for sale fell 1.4% yoy, and their total securities book grew only 3.4% yoy.
With Turkey’s central bank raising its overnight lending rate to 12% from 7.75% at the end of January, it is now clear that the private sector’s economic and financial behaviour is expected to make the adjustment. The fact that it has a net cashflow deficit of approximately 6.9% of GDP tells us this will be painful. So that J-curve improvement in trade and current account balances cannot come soon enough.
But there is a kicker which the rest of Europe is likely to feel. With Turkey's banks willing to fund private sector savings & cashflow deficits, it is no surprise that investment spending continued to surge throughout 2013, with national accounts showing capital formation spending rising 9.6% yoy during the first nine months of 2013. By my estimate (formed by depreciating all gross fixed capital formation over 10yrs), Turkey's capital stock is currently growing around 11.7%. Topline growth has not kept up with this pace, so asset turns, and probably return on capital, have declined uninterruptedly since mid-2011.
But what happens now is precisely that this capital spending will stop, and Turkey's industries will raise asset turns and cashflow precisely by satisfying export demand, at no matter what price. The rest of Europe must expect that as Turkey seeks to deploy that capital stock more intensely, its industries will be eating someone else's lunch – almost certainly those of its near neighbours in the Eurozone.
No comments:
Post a Comment