Waiting game in the real sector?

THE FIRST piece of good news is that the real sector confidence index has been above the optimism limit of 100 for four consecutive months and is increasing as a general trend. The second piece of good news is that the index has now risen to its highest level in nearly two and a half years. The real sector confidence index was 108.1 in October, its highest level since it hit 109.9 in May 2018.

This is the glass half-full perspective. In general, things do not look bad. However, the details tell us something else. The most inclusive item measured by the real sector confidence index, which summarizes almost all the questions, is the item looking at the general course of the real sector. The question asked is exactly this: “What is your opinion on the general course of your industry compared to a month ago?”

Let us remember how the index works: In the real sector confidence index, negative responses are subtracted from positive responses and 100 is added to the difference. The resulting number shows the index.

The index for the general question stated above also rose to over 100 in October. However, there is a problem in the details. Let me try to explain.

In April, when the pandemic took the economy by storm, 36% of real sector organizations said the general trend was the same compared to March. Only 3% said it was better, and 61% said it was worse.

In May, the balance changed rapidly and those who stated that they were pessimistic decreased to 39%, and fell below 20% over the following months.

So, were pessimists replaced by optimists? There has been an increase in optimists, but the increase has only reached pre-pandemic levels. The trend has been mainly toward those who said “the situation is the same”.

The rate of those who say the situation is the same compared to the previous month increases gradually. More than three-quarters of the 1,732 real sector businesses surveyed in October expressed the view that the situation did not change compared to September. This is unprecedented in recent years. There were as many optimists as pessimists in October, similar to the situation in August. The difference this time is that the rates are small because the vast majority say “the situation has not changed.”

The real sector is increasingly saying the situation has not changed, but they are the ones who can change the situation. So why don’t they do it? Why don’t they act? This is the main question. Obviously, a wait and see policy has prevailed spurred by uncertainty.

The exchange rate to further increase uncertainty

On the day when these lines were written, the dollar exceeded 8.09, and the euro exceeded 9.56. The reasons for this increase, which exceeds 1 percent in a day, are a completely different issue. Let’s look at the result that will emerge. This rapid increase, even the climb, will make things for the real sector very hard. However, while the majority is negatively affected, individuals and organizations whose income is in foreign currency will almost celebrate. This increase in exchange rates will primarily cause difficulties for real sector organizations with foreign currency debt and unfortunately there will be bankruptcies in the upcoming period. Even if that is not the case, workers may be fired to save on production costs. If the boycott for e Turkish products, which have been increasingly spreading recently, start to affect export figures, the positive effect of the exchange rate increase on exports will also disappear.

Financial system deceived by MPC decision

The Central Bank raised the interest rate by two points at the Monetary Policy Committee (MPC) meeting on September 24. Even with this increase, the policy rate did not reach the average funding cost, which was the actual interest on the day. But this interest rate decision was interpreted as positive in terms of showing a willpower by the Central Bank. So, what changed on October 22? Why wasn’t a general increase in interest rate made at the meeting on that day when it was needed the most, but a strange practice was adopted by increasing the interest of the late liquidity window, instead? The result was exceed on the dollar rate. While we are trying to find out how to get out of chaos, we create new chaos.

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