Sunday, February 27, 2011
...is the sharp drop in value-added-taxes, or VATs, on imports. It is a common Turkey economist trick to use import VATs to forecast actual imports, as the former is released a couple of weeks before the latter:
Although the relationship has not been picture-perfect, as you can see in the graph above, it still means that we could end up with a low January imports figure, which would mean that the CBT's policies have started to work... Doing a simple regression reveals that import growth could have retreated to around 20-25 percent year-on-year, or yoy.
We can also use preliminary exports data from Turkish Exporters Association, or TEA, to come up with a forecast of actual exports, which is in fact much more reliable than the imports estimate, due to the close relationship between the two, which somehow weakened in the last couple of years, but is still robust:
Getting my exports forecast from a simple regression between the TEA and TurkStat figures and combining the result with my imports projection, I end up with a monthly deficit figure of $4.5 billion. This would mean that the trade deficit widened around 28 percent yoy, which would be a remarkable slowdown in the pace of the widening of the deficit, even though it is still widening!
That's why, despite inflation is expected to come in just over 4 percent on Thursday on the back of base effects (mainly because of high food inflation last February), I believe that the most important domestic data release of the week will be tomorrow's January trade balance...
But since I started with the budget, let me finish with it. I just want to reiterate that the January budget, as summarized in the table below, is not nearly as good as it looks:
Why? The improvement in the budget is mainly driven by revenues (indirect taxes resulting from robust growth as well as non-tax collections such as privatization and transfers from the Unemployment Fund), whereas primary expenditures continue to grow at a rather robust pace. So no fiscal tightening, i.e. tandem fiscal policy, even though it is not pork barrel spending, either.