Turkey: Sentiment among firms returns to optimism in June
After a brief stint in pessimistic territory in May, business confidence among Turkish firms moved back into optimistic territory, suggesting that the dip in confidence was influenced by the cancellation of the Istanbul mayoral election. The Real Sector Confidence Index rose from 98.9 in May to 102.5 in June, closing the second quarter on a high.
Firms’ outlook on overall order books in the next three months improved in June over the prior month and this largely reflected improving domestic new business; views on export order books in the next three months decreased in June. This follows last month’s sequential national accounts data that showed the Turkish economy had exited the recession. Less positively, the improvement in the headline figure was weighed on by a more pessimistic view on production in the next three months and employment.
Inflation expectations eased from 23.5% in May to 22.7% in June. The still-elevated inflation expectations are likely influenced by weakness in the Turkish currency; in the first four months of the year, as the lira continued to lose ground against the greenback, before regaining some lost territory from late May onwards. While currency weakness should have a pass-through effect, inflation dynamics have improved recently owing to frail domestic demand and tight monetary policy.