Turkey’s Manufacturing Purchasing Managers' Index (PMI) recovered slightly from 46.4 in May - the lowest level recorded since April 2009 - to 46.8 in June, IHS Markit said on July 2.

Any result below 50 denotes a contraction.

The PMI was posted at more than the 50 no-change mark for 13 months in a row from March 2017 to March 2018, after spending the preceding 12 months below 50.

The June data indicates that a contraction in the economy took place for a third month in a row. The manufacturing PMI showed its first negative result earlier this year in April.

The index was at 55.7 in January - the highest level recorded since March 2011 - before sharply declining in the following four months during which the ongoing currency crisis took hold and accelerated.

“Challenging business conditions continued in the Turkish manufacturing sector at the end of the second quarter, according to the latest PMI data. The overall decline reflected further, albeit more moderate, slowdowns in new orders and output. Inflationary pressures remained elevated due to developments in the exchange rate”, Gabriella Dickens, an economist at IHS Markit, said of the latest data.

Similar warning signs can be seen in the industrial production numbers. Turkey’s calendar-adjusted industrial production index gained 6.2% y/y in April, with growth slowing for the fourth consecutive month, data from national statistics office TUIK showed on June 13. A 13.7% y/y rise was posted in December but the annual growth rate has been in decline since then.

Industrial production in Turkey expanded for an uninterrupted 19 months from October 2016 to April 2018. It peaked with the 14.7% gain seen in July 2017. That was ascribed to the base effect caused by the failed coup attempt in July 2016, which triggered an economic soft spot.

Average annual industrial production growth quickened 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 industrial production growth of 6.3% in 2017 and 1.8% in 2016.

Turkey’s latest manufacturing boom was very much founded on the government's TRY250bn (€54.13bn) credit guarantee fund (CGF) used to backstop bank loans to businesses from late 2016. It was seen to encourage a credit binge. Following the failed coup and the brake it put on economic growth, Turkey boosted the economy by upping spending across the board, hiking wages, pouring capital into investments as well as guaranteeing loans with the CGF.

The government recently announced a fresh stimulation package for 2018 in the build-up to the June 24 snap elections. However, it has not yet shown any substantial impact.

Higher domestic and external financing costs and a weaker currency will hurt Turkey’s growth, which was already likely to slow due to the withdrawal of stimulus measures after the elections, Fitch Ratings said on June 13 in the latest edition of its Global Economic Outlook.

Consumption was likely to hold up until after the elections, reflecting pre-election sweeteners, before slowing dramatically, Fitch said, adding that investment was also set to slide from Q3, with net trade providing the main positive growth dynamic.

Fitch forecast that the Turkish economy would grow 4.5% this year.