Turkey’s calendar-adjusted industrial production index moved up 5.6% y/y in July, following the revised 2.8% annual growth registered in June, data from national statistics office TUIK showed on September 17. Analysts are keeping a keen eye on the data as they assess whether Turkey is set for a steep recession as a consequence of its currency crisis and wider financial difficulties.

TUIK initially gave a 3.2% growth figure for June in last month’s data release. The statistics institute regularly follows up with significant revisions in its own data sets. Generally, negative revisions follow comparatively better initial announcements.

Markets had expected 1.85% y/y in July’s industrial production growth, according to a Reuters poll. A Bloomberg survey found an expectation of 1.2% in annual growth.

Business surveys and foreign trade deficit data are pointing to Turkey experiencing a hard landing, despite the better-than-expected industrial data.

“The much stronger-than-expected Turkish industrial production for July suggests that the boost to competitiveness from the fall in the lira in May and June supported the sector. But these predate the acute phase of the sell-off and the dramatic tightening of financial conditions that occurred in August,” Jason Tuvey of Capital Economics said in a research note.

“The hard activity paints a more upbeat picture than the survey figures—the manufacturing PMI has pointed to output contracting recently,” Tuvey also said, adding: “…we doubt that this resilience will last… Overall, we are comfortable with our view that the Turkey will experience a deep recession in the coming quarters.”

Banu Kivci Tokali of Halk Invest expected seasonally-adjusted industrial production growth to decline to 2% levels in August due to the long public holiday and financial fluctuations that took place in the month, according to Reuters.

Industrial production in Turkey has now stayed in annual growth territory for an uninterrupted 22 months running from October 2016 to July this year. Growth peaked with the 14.5% gain seen in July last year due to the base effect caused by the failed coup attempt in July 2016, after which Turkey hit an economic soft spot.

A 13.7% y/y rise was posted in December last year after which the annual growth rate declined for six months in a row.

August saw Turkey fall to 46.4 on the latest purchasing managers’ index (PMI) from 49.0 in July as output and new orders slowed on the back of exchange rate weakness, which also contributed to record rises in both input costs and output prices, IHS Markit said on September 2.

Industrial production grew 4.3% y/y in the second quarter of 2018, down from 8.1% y/y in the first quarter, according to the latest GDP data. In Q1 2018, average monthly calendar-adjusted industrial production growth stood at 10% y/y but it slowed to a revised 5.2% y/y in the second quarter.

Average annual industrial production growth slowed to 8.9% in 2017 from 3.4% in 2016, according to TUIK’s revised series of data. The previous data set pointed to average annual growth of 6.3% in 2017 and 1.8% in 2016.

Turkey’s manufacturing boom last year and early this year was substantially founded on the government's TRY250bn (€34bn) credit guarantee fund (CGF) for backstopping bank loans to businesses. Following the attempted coup and the brake it put on growth, Turkey spurred the economy by upping spending across the board, hiking wages, pouring capital into investments and guaranteeing loans with the CGF.

State-backed incentives have lost pace in 2018 despite the June 24 snap polls. Turkey is due to hold local polls in March 2019.

The government recently cut its 2018 GDP growth target to 3-4% from the previous 5% due to the failing economy. It is expected to announce a revised Medium Term Programme on September 20.