Germany: alone in the dark...

In 2011 we witnessed euro-zone countries (first PIGS then core-countries like Italy and France) struggling to cope with sovereign debt crisis. Contagiousness of government funding problems in peripheral countries affected core Eurozone (EZ) countries. Many mentioned about big holes and fractures (deficiency of fiscal and juridical union in EZ) which hampered decision mechanism and slowed the action EZ could take.

In a dim weather like this, there could be only one EZ country which had the chance to overhaul or at least alleviate concerns. The saviour in this drama could or would be Germany.

The reason for me to defend this opinion is strong macroeconomic figures that this industrialised country presents. Strong GDP figures clearly suggest that this country will keep on growing despite being in the middle of a regional cirisis.

From 55.3% at the end of 2007 to 58.9% in 2009Q2 and 55.6% in 2011Q3, consumer expenditure the main contributor of GDP has its boundaries determined. With fiscal tightening throughout the region, consumer expenditure has lost some pace but the weak eur/usd parity was there to give some support exports.

Also in money market Germany maintained its role as a safe haven: During panic or anxious time at which investors risk appetite wanes and the search for common and safe financial instruments accelerates, Germany is there. Take a look at the long term government bond yields. As crisis deepens, more and more investors are trying to buy german bunds. Another important thing is that there is people other than those who sell their stocks listed in DAX and demand for safer instruments. Because of them bond yields have lowered hastier than DAX index.

Ist das Publikum zufrieden?

It is a great achievement for german government to reduce unemployement ratio to 6.9% in 2011Q3 which was 8.1% in 2009Q1. During that period they kept CPI (yoy %) between 1-3% corridor. In addition to this, disposable income is also on the right track.

Summing up my thoughts, I believe that Germany will continue to be the driving force of EZ member countries in 2012. With weaker eur/usd parity, strong industrial production, GDP and retail sale data Germany has the opportunity to shine in foggy weather.

But if there are dark clouds ahead which could strengthen concerns about EZ's future, eur/usd parity could test 1.20 in the long term. Otherwise 1.40 would be the target for eur.

Sources: Reuters Datastream, Matriks

Turkey, in which direction...

How do we interpret the macroeconomic figures about Turkey?

Are we 100% certain about Turkey moving on the right track?

I've got some cold facts which can make you think about the expectations from oncoming year.

With our current account deficit (cad) of $65.1bn (nearly doubled the last years $33.5bn during Jan.-Oct. period - source: CBRT) and cad to gdp ratio of -9.8% in 2011Q2 (source: OECD) we are hoping a sustainable growth rate for 2012.

There is no need for panic because our financial account (85.6% of cad) can fill the gap. The most important thing is its content: $11.5bn FDI-foreign direct investment during Jan.-Oct. period (nearly 18% of cad) and $13bn (20% of cad) portfolio investment could be the short-term cure for our concerns. Nevertheless I think, with risk appetite diminishing and more bearish movement took place in the last half of 2011, the emerging markets are severely wounded. The main point of increase in portfolio investment is the sovereign bonds ($13.9bn). Actually that means Turkey does have higher interest rates than other countries for keeping the hot money alive.

Another interesting point is that we have a huge amount of net errors and omissions ($13.1bn - 20.2% of cad) of which's source CBRT assumes as tax reconciliation.

I took a look at OECD numbers about FDI inflows by industry (2000-2010) and I realized that the record amount of $22.0bn in 2007 has never reached again. Even with the cheap raw mateial funding in 2008-2009 this number respectively was $19.5bn and $8.4bn.

Again I am saying "don't get easily frustrated by Turkey". Our industirial production in October rose 7.3% yoy nsa and 4.4% mom sa, with both numbers beating market estimations. The positive results coming from there give us support for revising up 4Q2011 gdp ratio. Another surprise was countries 3Q2011 gdp growth: with 8.2% yoy in 3Q2011 and 9.6% (3 Q's cumulative) Turkey's shining 9.0% growth performance in 2010 is continuing. With deterioration in USD/TRY it is normal to have cpi and ppi increased 9.48% and 13.67% yoy respectively in November. The CBRT keeps on defending its idea of passthru effect which is caused by devaluation in TRY since European debt crisis.

To be an emerging market (em) has its disadvantages during global crisis or slowdowns. "Flight to quality" always does more damage to em's than developed ones. This is the price which em's are obliged to pay. Be always prepared to play tuff.