Friday, November 19, 2010

Another reader response

Since I spend a lot of time responding to ego-boosting spam, I should response to legitimate requests/comments/questions as well. Here's a comment from Rower32 to my post of my most recent HDN&ER column:
That's a nice looking V-Shaped capital acct chart there. Lemme make a bold prediction: the TTM flows will hit $90-100bil by May 2011. Two major plays right now are EM growth and commodities. The EM managers i talk to LOVE Turkey. It's such a success story in their eyes (and i partly agree) and you know how they love winners here in the states.

Anyways, maybe you are right and we'll see higher CPI prints in the next couple quarters. I think more troubling chart is seasonally adjusted unemployment rate. It's good to look at the long term trend here. Now I don't know how the stat agency calculates unemployment rate in Turkey. Would be nice to see civilian participation rate& labor force #s. Maybe some of the marginally attached workers coming back to the labor force, I don't know. We'll see how that evolves. Thanks for the insight. 
Reader32 is making four separate points, on the capital account, Turkey play, CPI and unemployment. Let me address each in turn:

On inflows: 90-100 billion of inflows (I am talking about inflows, not capital account here) is higher than my end-year 2011 projection of $85 billion, but it is not inconceivable, especially if flows to EM continue unabated. It is important to note that Turkey already got $85 billion of inflows in 2008, before the crisis decreased flows to $60 billion in 2009. This year, flows are very likely to end the year at over $80 billion, so Rower32 is definitely not ranting.

And he is right that EM managers love to talk Turkey. OK, I would agree that Turkey has achieved a lot in the past decade in the aftermath of the 2001 crisis, but I and many Turkey economists I respect are amazed at how the fund industry loves to cherry-pick data for Turkey, i.e. emphasize the strengths of the country, while turning a blind eye on the weaknesses... I believe this has to do partly with the investors' beauty contest, i.e. Turkey looks relatively good compared to the competition. But to render unto AKP what is AKP's: Economics policymakers are experts at PR: Not only they use their speeches to manage expectations, it is very easy for a fund manager to make make an appointment with the top policymakers and then get convinced on how strong the Turkish economy is.

On inflation: Let me be crystal clear so that I do not look like an idiot in a couple of months: Yearly inflation prints will continue falling because of base effects for the very least. But I AM claiming that the inflationary outlook is challenging: For one thing, food inflation will spillover to core inflation. That and the sticky inflation expectations make it very difficult that inflation will be anywhere near the Bank's target at the end of next year.

On unemployment: TURKSTAT unemployment rates come from a survey. Because of the high degree of informality, it does not make sense to use payrolls data, and that's why we get labor force statistics with a two and a half months lag. Anyway, the data you are asking is available. Here are a few charts, compliments of my friends at Turkey Data Monitor:

Fist, Labor Force Participation rates:
Employment by sectors:
Changes in employment by sectors:
And if you are interested in Turkish labor force statistics, I can recommend the Turkish think tank BETAM: They release short notes after each labor statistics release, usually in English as well as Turkish. And if you do speak Turkish, their director Seyfettin Gursel is a labor economist, and he regularly discusses Turkish employment figures at his columns in Radikal.


Rower32 said...

Thanks Emre-Although it's too early to make verdict on the inflation, last month's data, except were def on the bullish side (PMI & Cap Uti). This morning I saw the prices in Istanbul were up 0.34% mom in Nov due to a fall in food prices. I don't know how CPI Istanbul and CPI-U are related but my guess is that they are highly correlated (chart?). According to data looks like the inflation will either go up or down or stay the same. Regards,

Emre Deliveli said...

Hi Rower32;

I answered your question on ICC and TurkStat inflation in a separate post: