Hello Dear Reader,
This article of mine is about confidence.
Let us examine together what the consumer confidence index announced by TurkStat actually is, and what results it produces.
The real sector
It is the sector that produces in order to earn, such as agriculture and industry. It is the foundation of all commercial and financial activity in a country, because without production the gains secured through the stock market and manipulation stay far from the public, and one cannot speak of investment, of development. It is the sector most affected by global crises.
The Financial Sector
It is the name given to all institutions that intermediate the flow of funds. The services provided on the financial sector side fall into four groups:
- Mobilising savings,
- Distributing risk,
- Allocating resources, and
- Monitoring the resources allocated.
The sentiment of individuals is measured through confidence indices. The ‘sentiment’ of the individuals who make up the real and financial sectors gives direction to markets.
The spending, saving or investment activity of consumers and investors is related more to ‘emotional intelligence’ than to ‘cognitive intelligence’ alone.
The consumer confidence index
It measures consumers' sentiment and expectations regarding the country's economy.
In calculating the index, “over the coming 12 months”
-the household's expectation for its financial situation,
-the expectation for the general economic situation,
-the expectation for the number of unemployed,
-the likelihood of saving were taken as indicators. However, following an update, TurkStat announced that in its most recent index it no longer includes “the expectation for the number of unemployed and the likelihood of saving” in the calculation.
The real sector confidence index is applied to representatives of the real sector in order to measure investor sentiment.
The economic confidence index
It is a composite index summarising producers' assessments, expectations and tendencies regarding the general economic situation. Alongside the consumer, it reflects the expectations of manufacturing industry, the service sector, retail trade and the construction sector (the consumer, real sector (manufacturing industry), services, retail trade and construction confidence indices).
An economic confidence index and its sub-indices above 100 indicate optimism about the general economic situation, and below 100 pessimism.
Consumer confidence in Türkiye, with an index score of 54.9 on 22 April 2020, reached the lowest level announced since 2004, the year TurkStat began publishing the consumer confidence index.
The second lowest score was recorded in May 2019 at 55.3. In August 2018, the rise in exchange rates brought with it negative performance in macroeconomic indicators, affected consumer confidence, and for that reason a considerable fall was observed in the index scores.
The third lowest index score belongs to November 2008, at 55.7, in the aftermath of the global crisis of that period.
The Effect of Consumer Confidence on the Economy
Consumer confidence is affected most by economic, social and political developments and by the country's security. The income and employment expectations of individuals and those around them are reflected in their tendency to spend or to save. People lose confidence when they face the risk of losing their jobs, when the possibility arises of a fall in the income level they are used to. News about the economy, changes in growth, developments in the government's practices towards the public — in short, what is reflected in the media — affects people's confidence.
If consumers feel secure, their tendency to spend on their needs increases, and if their money is not enough they use credit. This tendency affects and revives both real markets, that is production, and financial markets.
If consumers lack confidence, the tendency to spend falls, the inclination to save rises; in other words, consumption declines. Declining consumption also slows production, and market stagnation begins. When production slows, those who would invest postpone their investment, and those who need workers stop hiring.
For this reason, indicators related to consumer confidence, such as the consumer confidence index, serve as a compass for the direction a national economy will take.
I hope for days in which our compass never strays from knowledge and science, for the sake of a secure future.
Aslı Arslan
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Contact:
Author: asli@arslanasli.com
