Economic data confirms lack of public confidence in Turkish government

The fall of the Turkish central bank’s reserves to its lowest ever level of minus $60.4 billion as of April 16, the ongoing ambiguity over the $128 billion allegedly spent under former treasury and finance minister Berat Albayrak, and recent billion-dollar profiteering scandals involving cryptocurrency companies have all called into question public confidence in the Turkish government and its economic policies.

Meanwhile, the government announced that no cash support, grants, or payment postponement plans would this time be put in place for the next COVID-19 lockdown between April 29 and May 17. Although not mentioned in the official papers, some reports also indicate that alcohol sales will be banned, with the government seeking to intervene in secular lifestyles under the cover of combating the pandemic.

Market and exchange rate volatility has increased, as has Turkey's risk grade and borrowing rates following last month’s dismissal of central bank governor Naci Ağbal. Ağbal was replaced by Şahap Kavcıoğlu after the central bank increased interest rates to 19 percent at a meeting of its monetary policy committee on March 18. He had been in office for less than five months.

The negative impact of these developments was not expected to be seen in March’s consumer confidence index released by the Turkish Statistical Institute (TÜİK), which drew on surveys conducted in the first half of the month.

However, the consumer confidence index fell sharply from 86.7 in March to 80.2 in April, its lowest level this year. The index of household financial conditions fell from 67.3 to 64. The index of household financial expectations fell 7.9 percent to 81. While the index of spending on durable consumer goods in the next 12 months fell from 97.4 to 92.8.

These figures show that arbitrary economic management, including sudden decisions and overnight appointments, have led to growing concerns over the government’s performance. Turkish citizens are postponing their spending as expectations for economic normalisation and improving conditions in the next 12 months fade away.

In parallel to the declining consumer confidence, the real sector confidence index released by TÜİK on April 26 revealed that pessimism prevails across almost all business sectors.

The service sector confidence index fell from 105.5 in March to 103.3 in April. The sub-index of demand for services fell by 7.2 percent to 103.6. The retail trade confidence index fell by 5.6 percent to 103. While the business volume and sales expectation sub-index for the next three months fell by 9.9 percent to 104.7.

Notably, the confidence index for the construction sector, championed by the government and supported by the public banks through low-interest loans, stood at 79.8 in March. It decreased by 3.1 percent to 77.3 in April.

It seems inevitable that confidence will fall further in May with the return of lockdown.

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