Turkey: Public spending secured robust growth in 2015
Seasonally- and calendar-adjusted Q4 2015 real GDP growth moderated to +4.1% y/y (+5.3% in Q3) and +0.7% q/q (+1.2% in Q3), taking full-year 2015 growth to a nevertheless surprisingly strong +4% (up from +3% in 2014). Surging public sector consumption (+5.4% y/y) and investment (+9.9% y/y) remained the key growth drivers in Q4, bringing the full-year rises to +6.7% and +7.6%, respectively. Private sector investment growth remained weak at +1.7% y/y in Q4 and +2.7% in 2015 as a whole. Consumer spending grew by a robust +4.5% in 2015 but continued to slow in Q4, to +3.8% y/y, affected by ongoing currency weakness and rising unemployment (10.5% in Q3). External trade activity remained weak and net exports subtracted -0.3pps from full-year GDP growth as real exports declined by -0.8% while imports edged up by +0.3%. In 2016, the economy will benefit from ongoing government support and low oil prices but downside risks have increased, namely mounting geo-political threats and tensions with Russia. Early 2016 data, point to a slowdown in activity (see WERO 16 March 2016). Euler Hermes expects annual real GDP growth will moderate to +3.3% in 2016.
China: Uneven recovery in industrial profits
Industrial profits of large companies increased in the first two months of 2016 (+4.8% y/y compared with -2.3% in the same period of 2015). The increase was led by the private sector (+7.5%) but state-owned companies continued to register a decline in profits (-14.5%). Sectors related to domestic demand (agro-food) or that are government targets (high-end electronics and automotives) improved profitability but for primary industries there was further contraction in profits (-12.1% in mining and quarrying). This divergence is likely to continue. Private demand has lost momentum because of weaker confidence and negative wealth effects from financial markets and external demand remains on a downward trend. Supportive measures (including tax cuts, public investment and targeted monetary easing) will probably focus more on sectors related to the new economic model (private consumption and high value added). Unproductive state-owned companies and sectors with overcapacity (metals and machinery) are likely to continue to struggle with deflationary pressures and a high debt burden.
Eurozone: More credit to the private sector
Credit to non-financial corporations (NFC) increased by +0.6% y/y in February. France and Germany registered credit growth of +0.2% m/m and +0.7%, respectively. There are also encouraging signs in Italy and Spain, where the credit crunch was a significant economic drag in recent years, with credit to NFC up by +0.1% m/m and +0.2%, respectively, after three months of contraction. The increasingly accommodative stance of the ECB, in the form of several cuts in the deposit rate as well as unconventional measures (including the TLTRO and asset purchases of sovereign and corporate bonds) may affect the private sector through additional bank credit supply, but also rising demand. This stance exerts downward pressure on bank interest rates, especially for loans to the SMEs. The Eurozone average is 2.7%, an unprecedented low, with France, Spain and Germany close to this average but Italy remains above, at 3.7%, as the banking system is reforming. The pick-up in credit confirms the recovery in Eurozone demand and that companies are increasingly likely to boost investment through bank financing and less through their cash flows.
Sub-Saharan Africa: Mixed bag
Presidential elections in Niger (run-off) and the Republic of Congo are expected to return to office incumbents Muhamadou Issoufou (second term) and Denis Sassou Nguesso (in power through most of the period since 1979 and allowed to run again because of constitutional changes to term and age limits), despite perceptions of electoral irregularities. Presidential elections in Zanzibar, a semi-autonomous group of islands and part of Tanzania, resulted in withdrawal of assistance from an aid agency because of perceptions of suppression of democratic rights. In contrast, a presidential run-off in Benin was “a model for Africa”, with President Thomas Boni Yayi standing down after serving two terms and in Cape Verde the opposition gained an absolute majority and unseated the ruling party. Meanwhile, Senegal held a referendum on cutting presidential mandates to five from seven years and barring presidents from running for more than two consecutive terms. This mixed outlook for political evolution in Africa again underlines the importance of selectivity in relation to market prospects.