Turkey: Businesses sentiment turns pessimistic as inflation expectations rise in May
Confidence among Turkish business turned pessimistic in May, with the Real Sector Confidence Index falling to 98.9 from 105.5 in April, which had marked the best result since June 2018.
In May, the output expectations eased somewhat but remained in expansionary territory; however, the current situation as viewed less favorably, as the total amount of current orders dropped and the stock of finished goods continued to decrease. Meanwhile, firms also became pessimistic regarding the number of orders over the past three months. More positively, firms remained optimistic regarding the outlook for output, employment and exports orders in the next three months.
Likely linked to ongoing currency weakness, firms’ inflation expectations for the next 12 months rose to 23.5% in May from 22.5% in April. The lira has come under renewed pressure in the aftermath of the 31 March elections, as President Erdogan’s AKP and the opposition Republican People’s Party (CHP) remain entangled in a bitter fight over the mayoral office of Istanbul; following the latter’s victory, the election commission annulled the results in early May. A rerun is scheduled for 23 June. Therefore, pressure on the lira is unlikely to abate soon but a high base effect and collapsing domestic demand should provide downward pressure on inflation.