Tuesday, May 12, 2009

Followup on weekly column: Latest Data

Capacity Utilization did indeed rise, but only modestly. Moreover, the figures suggest that Industrial Production might have bottomed out in March, as the numbers point to a slight recovery in IP in April- after adjusting for working days and cyclicality of course. But it seems this will be a very slow recovery....

As for the Balance of Payments (BOP), March current account, at USD 1.0bn, was below expectations and shows that the contraction there is continuing. However, contrary to the consensus view, there are some bad omens as well. First, corporate rollover fallen to 63%. Second, the fall in tourism revenues, 13% yoy, is gaining pace. Optimists say it will be much better in the peak summer months, adding the stable reservations as evidence. But, ask anyone in the tourism sector, and she will tell you those reservations don't mean a thing, as they can be cancelled at the last minute without much, if any, penalty (just think of it as the interaction between the oligopolistic tour operators and near perfect competitive hotels- a topic worth devoting a separate entry to).

In fact, the good thing about tourism is that unlike most other statistics, it is very easy to observe. Here is devoted column and blog reader David reporting from the frontline (from a recent comment to another blog):
The hotels here in Didim are completely empty, indeed if you were not in possession of a calender - there would be NO indication that the holiday season had started!!
We are weeks away from the peak season, and some are still claiming "all is well".... And when you ask how come tourism revenues would not contract by much when all of Turkey's main markets like UK (Didim, Marmaris), Germany (Antalya), Russia (Marmaris, Antalya) are contracting, the answer is the weak exchange. Sure, this can come in handy at the very margin, but incime effects are way stronger in tourism, not just for Turkey, but also in almost any other country (just do a google scholar search for relevant papers if I don't sound convincing). Or in layman's terms, if the pockets are empty, it doesn't matter how cheap Turkey is!

One interesting result of the different tourist base of different destinations is that we could see some regional differences. Each country is contracting at a different rate. Moreover, it wouldn't be too much for consumers at different countries not to act in exactly the same way. Finally, the relative income strata of incoming tourists from different countries is different, which would also lead to different consumption behavior (in terms of deciding to take a vacation, and if yes choosing Turkey, sort of a hierarchical or nested model). I would therefore not be surprised if some destinations fared better over the summer than others. But to suggest that Turkey will have a swell tourism season because the exchange rate is weak borders between absurdity and outright insanity.

Just to diverge a bit, there are other interesting trends in the BOP figures: First, the upward trend in gold exports is continuing. As I mentioned before, this recent trend has been interpreted before as strained consumers turning their gold savings into cash, but although this explanation makes sense, I haven't done a thorough analysis to confirm it. Second, net errors and omissions continues to rise; USD 2.1bn in march and at USD 17.6bn in the last six months. The consensus view is that this is personal wealth being repatriated as corporate financing dries up, but again, although this is a perfectly logical explanation, there is no evidence either for and against.

To sum up: What to make all of this? OK, the current account is contracting, but the external gap is not shrinking as fast. Therefore, in my humble opinion, one of the arguments of the "send the doc away" camp is really flawed.

There is of course the state of fiscal affairs, the final data I had talked about in Monday's column, but that deserves a separate entry...

1 comment:

David Lloyd said...

Hi Emre,


If you think it's absurd to argue about the possible advantages of the exchange rate ........ take a look at this rubbish !!