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Turkey Panorama: Depreciation in exchange rates and sluggish domestic demand affect corporate payment performance

  • The sharp depreciation in exchange rates at the beginning of 2014 reflected negatively on company profitability
  • Slowing domestic demand due to rises in interest rates and austerity measures reflected negatively on payment performance
  • Coface sector review notes higher risk in housing construction and non-iron and steel metals

Click here for the complete Panorama.


Global credit insurer Coface focuses on in its latest economic Panorama. The currency depreciation, which stabilized after Central Bank intervention in January 2014, continues to negatively affect company balance sheets. Credit restriction measures introduced at the same time to contain the current accounts deficit have slowed down domestic demand. In line with these developments, Coface has noted impairments in the payment capacities of sectors with production and sales concentrated predominantly on the domestic market.


Coface forecasts the Turkish economy to growth by 3.1% in 2014 and 3.5% in 2015. In November 2014, Coface downgraded Turkey’s country risk assessments from A4 to B, due to lower growth prospects, higher private sector indebtedness and exchange rate volatility.


“Given that the level of exchange rates and domestic demand are two key factors affecting the profitability of companies in Turkey, a moderate recovery in domestic demand in the first quarter of 2015 may positively affect profitability of companies. However, developments in the global economy, geopolitical risks, the expected process of interest rate hike by FED and the upcoming general elections in Turkey signal the persistence of exchange rate risk. This suggests that we are entering a period when companies must manage their cash flows and borrowing much more consciously,” says Seltem Iyigun, Coface MENA economist.


Sector Overview

Metals (non-iron & steel): Import-dependence in raw material supply, declines in raw material prices, and the negative impacts of changes in exchange rates on borrowing costs are the main risks facing companies.


Automotive: The tax rates increased at the beginning of the year, rising interest rates,  austerity measures introduced to contain consumer loans and the surge in exchange rates, among other factors, have resulted in a significant decline in domestic sales. However, positive outlook continues for exports.


Food:The greatest risk for food producers is the rise of production costs due to drought experienced

during the year.


Chemical: Almost 70% dependence on imports in raw material supply and the slowdown in the construction sector, a key client of this sector, are the main risks.


Construction: On the housing side, the uncertainty raised by the increase in interest rates and slowdown in the economy seems to have caused a regression in consumer confidence, which reflects negatively on the housing demand. The widening gap between supply and demand is viewed as another risk factor.


Retail: Private sector consumption accounts for approximately two thirds of GDP in Turkey. According to recent data, retail sales continue rising and the risk level of the sector does not seem to be high.


Textiles and apparel: This sector, which has a high production and sales capacity towards both the domestic and external markets, features a medium level risk. The recovery trend in European markets and the exports supported by higher exchange rates are positively affecting the sector’s performance.


Pharmaceuticals: The pressure caused on prices by reference drug system and high level of competition is negatively affecting the profitability of companies.


Annie Lorenzana

North America
MOB: +1 (407) 221-3496