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Weekly Export Risk Outlook n39: Canada, China, Turkey, UK



​Turkey: Lira – how low can it go?

The deadliest terrorist attack in recent history on 10 October in Ankara, with around 100 fatalities, is adding to the already highly-uncertain political environment. Security concerns will rise further and the military campaign against both IS and PKK, which are under suspicion for this and a recent series of smaller attacks, will intensify. The lira has fallen from USD1:TRY2.90 before the latest attack to USD1:TRY2.94 today but beforehand it had recovered from an all-time low of USD1:TRY3.06 in mid-September as a result of some improving economic trends; in August, industrial output increased by +7.2% y/y and the current account deficit narrowed to just -USD163mn (although largely reflecting a fall in imports of -17% y/y). The external deficit remains Turkey's Achilles' heel, amounting to –USD26bn in January-August and on track to exceed -5% of GDP in 2015 as a whole. Combined with the upcoming U.S. Fed interest rate hike, this is exerting continued downward pressure on the TRY. Quick formation of a new government after the re-run on 1 November of June’s inconclusive parliamentary elections will be a positive and mitigate these pressures to some extent. However, this is far from certain.

China: Struggling?

In September, the trade surplus remained large at +USD60.3bn (+USD60.2bn in August) despite a large contraction in imports (-20.4% y/y, -13.8% in August). A regional breakdown shows import declines from most large trade partners, particularly ASEAN (-26.6% y/y) and Japan (-19.3%). On the export side, data were slightly positive; total export growth was still negative (-3.7% y/y) but a regional breakdown reveals some improvement, with exports to the U.S. and ASEAN up by +6.7% y/y and +6%, respectively. Meanwhile, deflationary pressures persisted in September; producer prices declined for the 43rd month (-5.9% y/y) and consumer price growth weakened to 1.6% y/y from 2%. Overall, high-frequency indicators suggest growth in Q3 will slip below the +7% government target. The outlook is clouded by weak export orders, price pressures and relatively weak growth in domestic demand; private consumption is showing resilience but lower investment growth is acting as a drag. We expect further easing measures and GDP growth will increase by +6.8% this year and by +6.5% in 2016.

UK: Is no inflation good news?

Inflation fell back into negative territory, at -0.1% y/y in September – it was also negative for a period in April and June – reflecting renewed weakness in oil prices and falling food and transport prices of -2.2% y/y and -2.7%, respectively. Prices of goods fell -2.4% y/y while prices of services increased steadily (+2.5%). Core inflation (excluding food and energy prices) remained stable at 1% y/y. The fall in headline inflation is in line with expectations and is likely to continue for a further 2-3 months. Overall, inflation is likely to be 0.1%, at best, on average in 2015 and then increase to almost 1% in 2016 (still very weak). Indeed, the drop in the pound on the back of increasing dovish market expectations related to the first BoE rate hike (our expectation is for Q2 2016, at the earliest) bodes well for positive inflation going forward. Moreover, still solid wage growth (around +3% y/y) and declining unemployment (5.4%, the lowest level since 2008) are also supportive. Although low inflation supports household real purchasing power it is a drag on company turnover, which has been on a downtrend since Q2 2014.

Canada: Healthy jobs and housing markets

The latest jobs report was mostly positive with +12,100 jobs created in September, the third consecutive month of gains and the sixth this year. Wage growth was +2.2% y/y in September, the fifth consecutive month above inflation. The labour force increased by +31,000 after +52,000 in August, sending the participation rate up +0.2pps to 65.9% while simultaneously driving unemployment up to 7.1% from 6.8% in July. However, other details clouded the report. Education lost an unlikely -51,000 jobs, which has been attributed to problems with seasonal adjustments. Full time jobs fell -62,000, part-time jobs gained +74,000 and hours worked fell -0.8% m/m. Meanwhile, the housing market is continuing to rebound with a sharp gain in starts of +230,700 annualised units in September after +214,300 in August. It was the largest gain in three years. Multiple unit starts increased +157,900, the second highest in 25 years, representing a +10.5% y/y increase. Both the jobs and housing data support EH’s outlook for encouraging GDP growth going forward.