Skip directly to Accessibility Notice
  • Emerging Markets Debt Daily

    Concerns about Turkey Growth, Reserves

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    May 02, 2019

    Turkey’s growth outlook remains dim, while authorities are coming up with more heterodox schemes to provide local liquidity and improve the international reserves’ appearance. The Czech National Bank hiked its policy rate, fearing that the currency weakness may feed into inflation.

    April’s global activity surveys are coming in—and unfortunately there was yet another downside surprise in Turkey
    . The manufacturing Purchasing Managers' Index (PMI) failed to sustain the Q1 momentum, dropping to 46.8 in April. The main question right now is whether the government will need to resort to additional fiscal stimulus to support growth. Today’s release also puts more pressure on the central bank not to tighten its policy stance in order to deal with sticky inflation. Meanwhile, the heterodox policy experimentation continues. The latest headlines suggest that the central bank wants to borrow gold from local banks, swapping it for lira liquidity. Presumably, this is done to improve the growth outlook—and has nothing to do with international reserves’ accounting. We are not buying into this.

    The Czech National Bank (CNB) decided to defy the global dovish narrative and go for another 25bps policy rate hike. The main reason is the CNB’s concern that the persistent currency weakness will push core inflation higher in the coming months. The board did not rule out more tightening going forward. However, the country’s activity surveys continued to weaken in April. The manufacturing PMI undershot consensus at 46.6, generating concerns that further policy hikes will be damaging to the real economy.   

    An uptick in Indonesia’s headline inflation raised some questions about the central bank’s ability to loosen its policy stance later this year. Yearly inflation indeed surprised to the upside, accelerating to 2.83% in April. However, this mostly reflected higher food and transportation prices and very low base effects. The underlying inflation pressures remain contained, while domestic demand is cooling (as can clearly be seen in the recent trade balance improvements). This should ease the central bank’s concerns, paving the way to policy easing in the coming months—both in the form of lower reserve requirements and eventual benchmark rate cuts.


    PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments.; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.

    The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. Certain information may be provided by third-party sources and, although believed to be reliable, it has not been independently verified and its accuracy or completeness cannot be guaranteed. Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as the date of this communication and are subject to change.

    Investing in international markets carries risks such as currency fluctuation, regulatory risks, economic and political instability. Emerging markets involve heightened risks related to the same factors as well as increased volatility, lower trading volume, and less liquidity. Emerging markets can have greater custodial and operational risks, and less developed legal and accounting systems than developed markets.

    All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.