Turkey’s calendar-adjusted industrial output showed a 2.7% y/y rise in November, beating the market consensus for a gain of 1.7% y/y.
On an unadjusted basis, industrial production grew at 4.6% y/y in the month versus economists’ expectations for 2.8% y/y.
The November data will raise hopes that economic activity, which slowed in the wake of the failed coup attempt in July last year, may finally be picking up. Turkey’s economy contracted by 1.8% y/y in the third quarter of last year. The government’s revised medium-term programme forecasts GDP growth of 4.4% for this year.
News of the better-than-expected industrial production data did not, however, have a positive impact on the currency. The lira weakened to a new record low of 3.6863 per dollar at 0930 Istanbul time, January 9, as geopolitical risks and domestic political issues continued to keep the currency under pressure. The dollar’s rally against other currencies following the latest US payrolls data also contributed to the lira’s decline.
All eyes are now on Turkey’s central bank which is scheduled to meet on January 24 to review its interest rates and may be forced by inflation to decide in favour of monetary tightening. The rate-setters are essentially caught between a rock and a hard place.
If the bank decides to increase its policy rates to prop up the lira, the country’s slowing economy will take another hit. But if it fails to act, the lira will come under further pressure. A weaker currency will push up inflation through rising costs and will hurt consumer and business sentiment.
The other concern is the foreign currency liabilities of private companies. As the lira weakens it will become more difficult for private companies to service their external debt.
President Recep Tayyip Erdogan last week renewed his call for the central bank to reduce interest rates to boost economic activity. Erdogan is also asking citizens to sell foreign currencies they possess to buy gold or lira to support the lira.
On a calendar-adjusted basis, intermediate goods production contracted 0.3% y/y in November, while durable consumer goods rose 0.1% y/y. Energy output increased by 8% y/y and capital goods production rose by 7.4% y/y. TUIK also reported a 2.1% y/y increase in manufacturing production in November after a 1.7% y/y rise recorded in October.
|Calendar-adjusted Industrial Production Growth by main Industrial Groups (y/y, %)|
|Durable Consumer Goods||-16.6||1||-9.5||-9.5||0.1|
|Non-durable Consumer Goods||-4.8||5.8||-6.5||4||0.9|