Deepening downturn in Turkey indicated by November industrial output data

Deepening downturn in Turkey indicated by November industrial output data
By Akin Nazli in Belgrade January 14, 2019

Turkey’s calendar-adjusted industrial production index contracted for a third consecutive month in November and at an escalating pace of 6.5% y/y, data from national statistics office TUIK showed on January 14.

“Unadjusted November IP registered a decrease of 6.5%, worse than the consensus estimate at 3% and our estimate at 4%. There was no working day difference between the same period of 2017, hence the calendar adjusted index also posted a 6.5% y/y decrease. In calendar and seasonally adjusted terms, the IP lost ground by 0.3% m/m. In sequential terms, the [month on month] fall in IP has stretched to its fourth consecutive month,” Ozlem Bayraktar Goksen of Tacirler Invest said in a research note, adding: “The sub components have portrayed a broad-based deterioration in industrial production as out of the 24 manufacturing sub-sectors, 18 sectors registered y/y declines in calendar-adjusted terms.”

Looking ahead to the likely December IP growth data, preliminary foreign trade figures indicated a prevailing weakness, Goksen also said.

Tacirler Invest anticipated that GDP in the fourth quarter of last year will be shown to have contracted 2%. It maintained its 2018 and 2019 GDP growth estimates at 2.8% and 1.5%, respectively.

Due to the Turkish lira (TRY) crisis and subsequent economic ill-effects, Turkey’s growth slowed to 1.6% in the third quarter of last year. It is widely expected that Turkey will soon be shown to have entered a recession.

“Despite some loss of steam in the deterioration, the maintenance of a sharp contraction in IP and the poorer performance of exporting sectors could be the downside risks on growth. On the other hand, the continuation of tax incentives, recent supportive loan restructuring facilities and some stabilization in the credit correction could provide some buffer in the short term. We expect GDP growth to be 3% in 2018 with some downside risks and to fall further to 1% in 2019, assuming a more positive outlook in terms of external capital flows,” BBVA Research said in a note.

September brought an end to a 23-month-long streak of uninterrupted growth in Turkish industrial output stretching back to October 2016. The October 2018 data confirmed that industrial production in Turkey had entered a phase of contraction, and at an escalating pace of 5.7% y/y. The October data followed the decline of 2.5% y/y (revised for second time) recorded for September

The annual contractions registered in October and November industrial production were the deepest recorded since during the economic crisis in 2009. The November data also showed Turkish industrial production had contracted for a three-month long uninterrupted term for the first time since 2009.

2018 auto production down 9%
The Turkish Automotive Manufacturers Association (OSD) said on January 13 that vehicle production in Turkey declined by 9% y/y to 1.55mn units in 2018, while domestic sales contracted 35% y/y to 641,541 units.

Auto exports declined by 1% y/y to 1.32mn units but export revenues rose 11% y/y to $32bn.

Turkish automakers have thus far addressed the slump in domestic sales by leaning on the dominance of exports in their sales. However, expectations for a slowdown in Europe have mounted and, with the European continent being Turkish automakers’ main export market, such a downturn could weigh on the Turkish auto industry.

Turkey’s textile exports rose by 4% y/y to $10.5bn in 2018, and the 2019 target for these shipments stands at $11bn, Ahmet Oksuz, head of the Istanbul Textile and Raw Materials Exporters’ (ITHIB), said on January 14.

Oksuz expected a contraction in domestic demand this year. He warned that cost pressures would trigger price hikes.