Turkey’s industrial output is expected to increase 1.3% y/y in April, a CNBC-e poll of economists showed. Industrial production gained 4.4% y/y (on a calendar adjusted basis) in February, after growing 2% y/y in January. The 4.4% increase was the fastest output growth since May 2012, when industrial production rose 5.7% y/y. The seasonally & calendar adjusted industrial production advanced 1.5% m/m in February. The statistics institute will announce March industrial production data today (May 8).

Manufacturing activity slowed in April. HSBC Turkey Manufacturing Purchasing Managers’ Index (PMI) dropped from 52.3 in March to 51.3 in April, a five-month low. Output in the Turkish manufacturing sector rose for the ninth consecutive month however the rate of expansion was at its slowest in eight months. As a sign that economic recovery may not be as sharp as previously expected, imports of capital goods and intermediate goods fell 12.5% y/y and 0.7% y/y, respectively in March after they rose 10.5% y/y and 8.1% y/y in February.

The real exchange rate (REER) index rose to 121.1 in April from a revised 120.3 in the previous month. Central bank governor Erdem Basci last week said that if the REER exceeded 120 threshold, the bank would consider a measured rate cut. Lower than expected inflation in April and the latest REER data now boost expectations for another interest rate cut when the bank’s monetary policy committee meets on May 16.Another factor that fuels optimism is PKK’s pull-out. PKK militants are expected to start withdrawing from Turkey today. There are also growing expectations among market participants for a second rating upgrade to investment level. Fitch raised Turkey to investment grade in November last year. Moody’s and S&P both rate Turkey one step below investment grade.