Wolf in sheep’s clothing: Turkey’s consumer rebound

Recent Turkish data is hinting at an economic recovery driven by domestic demand, especially consumption, which is actually really bad news. I will explain myself, but let’s start with the facts:

The manufacturing purchasing managers’ index (PMI), which was released on Dec. 1, increased for a fourth consecutive month in November and is now at its highest level since February. The improvement was broad-based, and while the increase in the output sub-index was marginal, the rise in forward-looking indicators, such as new orders, new export orders and employment, was significant.

Business channel CNBC-e’s consumer confidence indices, which were released on the same day, confirmed this rosy outlook. The overall index increased mildly in November after having fallen for two consecutive months. The consumer sentiment sub-index, which measures the appetite for durable goods, rose for a fifth consecutive month. Sales of durables for which we have regular data, such as automobiles and white goods, have indeed improved.

These figures confirm the Central Bank’s observation, as stated in the one-pager accompanying its latest rate decision, that “the contribution of domestic demand to growth is increasing.” But make no mistake; this is not a broad-based economic recovery. For example, the Bank’s latest business tendency survey, which was released on Nov. 24, showed a fall in capacity utilization and real sector confidence index (RSCI) in November. While the latter is usually a good leading indicator of private investment, its fixed investment expenditures sub-index improved.

Similarly, preliminary exports data from Turkish Exporters’ Assembly (TİM), which were also released on Dec. 1, contradicted...