Afternoon analysis 12.12.2016

Turkey’s economic growth is at its lowest level in approximately seven years. The data regarding trade in goods in the Polish foreign trade show that export increased by 5.1% during the first ten months of 2016.

Unexpected decline of Turkish GDP

The Turkish economy decreased unexpectedly in the third quarter. This was also its first decline in seven years. The market expected a 0.3% growth, but the Turkish Statistical Institute informed that the economy of Turkey decreased by 1.8%. Moreover, the growth has been revised from 3.1% to 4.5% for the second quarter and from 4.7% to 4.5% for the first quarter.

This decline was mostly caused by a decrease in consumption by 3.2%, investments by 0.6% and in export by 7% (with an increase in import by 4.3%). Moreover, the government expenses doubled. Thanks to this, a decrease in economic growth wasn’t as large as it could have been. Moreover, the Turkish Statistical Institute changed the base case year from 1998 to 2009, in order to reflect the economic growth’s level more accurately. This could also impact the final result of the GDP growth for the third quarter. Today, the Turkish lira was approximately 1% weaker against the dollar. The USD/TRY was near its historical records.

Relatively positive data from Poland

The Polish Central Statistical Office (GUS) published the Polish CPI data for November. This index remained unchanged in YoY interpretation, which was consistent with expectations. However, it increased 0.1% MoM. For more than two years, inflation was negative in Poland, but the current trend combined with rapidly increasing oil prices (more than 25% during one month) should translate to its further increases. Prices of shoes and clothes decreased by 4.7% MoM. However, prices of food and drinks increased by 1.3% and restaurant and hotel services increased by 1.6%.

GUS also presented the data regarding trade in goods in foreign exchange, for the period between January and October. Export increased by 5.1% YoY and import increased by 3.5% YoY. This caused an increase in trade in goods balance from 8.96 billion PLN last year to 19.13 billion PLN in October (18 billion PLN in September). The general export growths was mainly caused by trading with developed markets (positive 5.9%). However, export to the emerging market countries decreased by 4.4% YoY.

The zloty remains weak and continued to lose against the forint. The HUF/PLN went down to its minimum from Friday. The euro reached the level of 4.46 PLN, but the dollar went down below 4.20 PLN. However, this was a result of a weaker global condition of the American currency (the EUR/USD was above 1.06). Currently, investors anticipate the decision from the Fed regarding interest rates. Therefore, we can’t expect any larger moves until the meeting. This decision will be determined by the American treasury bonds and a potential increase in their profitability. It may happen that the Fed will announce three rate hikes for 2017. This would case an outflow of capital from Poland and increase the spread between the Polish and the German treasury bonds. Therefore, the zloty would wear-off.

Tomorrow’s events

At 8.00 AM, Destatis will publish the German CPI data for November. Inflation in Germany remains at a relatively low level. It was decreasing since the end of 2011 (approximately 2.5% YoY), to reach a negative level at the beginning of 2015. It was also negative in March 2016, but it has been growing since then. The CPI data was at the level of 0.8% YoY in October. The same level is expected for November. A 0.1% MoM is expected as well. An increase of this index may be supported by increasing oil prices. This data will most likely have a limited impact on the euro, due to the fact that the Fed meeting will be held on Wednesday.

At 10.30 AM, the Office for National Statistics will present inflation data for the British economy. Since the end of 2015, inflation in the United Kingdom has been in upper trend. Moreover, its growth has been supported by the weaker pound, as well as by higher oil prices. Additionally, the Bank of England announced that it will tolerate the fact that inflation may be higher than inflation goal. In September, inflation was at the level of 1% YoY. However, its growth went 0.2% below the market consensus (0.9%). The market expects inflation to grow 1.1% YoY in October. Even though this level isn’t low, a higher inflation growth may be harmful for the United Kingdom in the long-term. This is because it may lead to an increase in stagflation likelihood.

At 11.00 AM, the ZEW Institute will publish the consumer trust index for December for Germany, as well as for the euro zone. The German economy is expected to grow. This would confirm the trend from the past two months, as well as translate to an increase in the euro zone’s consumer index. There is still much left to this index’s maximum from the beginning of 2015 (54.8 for Germany and 64.8 for the euro zone). Therefore, its growth potential remains relatively large. In November, the German consumer index was at the level of 13.8 and at the level of 15.8 for the euro zone. However, this data will have a minor impact on the euro as well, due to the same reason as we mentioned in the case of the German inflation data.