Mixed signals are coming out of the Turkish retail sector, with sales volume making strong gains while at the same time consumer and business sentiment cooling. Incoming data point to growing pessimism over the economy. However it will be a while before the heat is taken out of the marketplace in the coming months.
According to a report issued by the Turkish Statistical Institute (TurkStat) on October 10, retail sales volume jumped by 4.5% in August over July, with sales of non-food products up 5.4%, the best month-on-month performance since the beginning of 2010. The year-on-year (y-o-y) result was also strong, as sales increased by 8.7% compared to the same month in August.
The larger trend this year has been up, with every month showing y-o-y growth, except June, likely the result of the anti-government protests earlier this summer.
Though sales have gained strongly, shoppers’ sentiment is moving the other way; the TurkStat’s consumer confidence index dropped to a one-year low in September, falling 6.6 points from the previous month to 72.1, a long way from the 100 points that indicate a positive confidence level. The Turkish public’s expectations for the economy for the coming 12 months also fell, dipping by seven points to 95.8, indicating a negative turn to consumers’ medium-term outlook, a viewpoint that could also affect spending patterns over the next year.
According to William Jackson, an economist with London-based financial research firm Capital Economics, while the fall in the index may not reflect spending trends, it does indicate a general concern over the direction the economy is taking.
“The consumer confidence doesn’t have a great relationship to actual spending, but still it seems to be a sign that monetary tightening is feeding through to the economy,” Jackson told the Reuters news agency on September 27. “The weakening of the lira has resulted in higher import prices, particularly of energy.”
Concerns over plans by the US Federal Reserve to ease its bond-buying programme, a move that would drain capital out of developing markets such as Turkey, drove the lira to record lows in September. The currency depreciation has pushed up import costs, which will likely have a flow-on effect for the retail sector for the rest of the year and into 2014.
It is not just consumers that are feeling more pessimistic, with business confidence in the retail sector also down, though sentiment among professionals still remains in positive territory, according to another report issued by TurkStat in late September. The retail trade confidence index eased by 0.1% in September, sliding back to 109.4 points, down from a peak of 113.6 points in April. However, seasonal trends suggest retail sentiment could decline further, with TurkStat data from 2011 and 2012 showing sectoral confidence dropping in each of the last four months in both years before rebounding in the first four months of the subsequent year.
One factor that has yet to be fully reflected in sales figures is the newly imposed ban on the selling of alcohol between the hours of 10pm and 6am. The rule, which came into effect in September, is expected to put a dent in the sales of smaller outlets licensed to sell alcohol, most of them local corner stores.
In May, shortly after the law was passed by the parliament, Mehmet Şimşek, the minister of finance, said the government expected a drop in tax revenues because of lower sales. It will probably take until the end of the year, when quarterly figures are compiled, for the full impact of the restrictions to become clear.
In early October, the government revised downwards its projections for economic growth for this year and the next, with GDP now forecast to increase by 3.6% in 2013 and 4% in 2014. That latter figure is one percentage point less than earlier estimates, but still above the 3.5% forecast issued by the IMF at the beginning of October. As the impact of slower growth starts to be felt more widely, retailers could start to see an effect show up at their cash registers.
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Register Here×The Turkish Prime Minister Bulent Ecevit has spent the last week in the US hoping to garner support for economic reforms at home and trade concessions for Turkish exports to the US.
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The Turkish Prime Minister Bulent Ecevit has spent the last week in the US hoping to garner support for economic reforms at home and trade concessions for Turkish exports to the US.
