Turkey: Business confidence sours in June while inflation expectations surge
June 25, 2018
The Real Sector Confidence Index published by the Central Bank fell from 109.9 in May to 104.6 in June, marking the third consecutive monthly decline. The drop came during a month which saw political uncertainty in the buildup to the 24 June presidential and parliamentary elections. Nonetheless, the index remained above the 100-point threshold that separates optimism from pessimism among firms, where it has been for over a year.
The deterioration came on the back of falling confidence across the majority of the components of the index. Firms grew less optimistic regarding output, employment and export orders over the next three months, and became gloomier regarding the general business situation and their current orders.
In terms of prices, firms’ inflation expectations for the next 12 months rose further into double digits in June, likely driven by the recent lira depreciation. Inflation expectations have now risen almost uninterruptedly since the start of 2018, and present a major challenge for the Central Bank, which is looking to drive inflation down towards the 5% target.
Author: Oliver Reynolds, Economist