Turkey’s calendar-adjusted industrial production index declined by 2.7% y/y in September, bringing to an end a 23-month-long era of uninterrupted growth stretching back to October 2016, data from national statistics office TUIK showed on November 16. 

“More evidence of recessionary conditions,” Timothy Ash of Bluebay Asset Management said in a note to investors.

Prior to the release of the data, a Bloomberg survey predicted there would be annual growth of 1.6% in the ninth month while Capital Economics forecast a contraction of 1% y/y.

“Turkey recession ahead: Industrial production falls 2.7% m/m in September vs a rise of 0.3% m/m expected and after a fall of 1.3% m/m in August”, Holger Zschaepitz of Welt said in a tweet.

“Biggest annual drop since 2009, underlining the slowdown in growth,” Fercan Yalinkilic of Bloomberg said on Twitter, while also noting that M3 expansion dropped to lower than 20% y/y last week, which at least provided a good sign when it comes to Turkey’s inflation, running at a 15-year high.

“Weaker-than-expected”
“The weaker-than-expected Turkish industrial production data for September add to the evidence that the economy is entering a deep recession. Our GDP growth forecasts lie well below the consensus,” Jason Tuvey of Capital Economics said in a research note entitled “Industry contracts, economy entering deep recession”.

Capital Economics expects GDP to decline by as much as 5% y/y in Q4 of this year and in early 2019. For the whole year of 2019, it expects a 0.5% contraction.

Ibrahim Turan, a former Turkish central bank deputy governor, said on Twitter that he expects 2% y/y GDP growth in Q3 and a contraction in Q4.

Adjusted industrial production growth for Q3 stood at 0.5% y/y with unadjusted growth at 1.5% y/y, Banu Kivci Tokali of Halk Yatirim told Reuters, adding that GDP growth could decline to 1%-levels in Q3 from 5.2% in Q2 and 7.3% in Q1.

Muammer Komurcuoglu of Is Yatirim told Reuters that GDP growth for Q3 is expected to come in at 2.2% y/y while a contraction is on the way for the last quarter.

Moody’s Investor Services is forecasting 1.5% y/y GDP growth for 2018 and a 2% y/y contraction in 2019, the rating agency said on November 15 in its latest emerging markets outlook.

Fitch Ratings has also cut its 2018 GDP growth forecast for Turkey. It predicts 3.6% y/y in its latest Emerging Europe report compared to its previous prediction of 4.1%, while it expects a 1.9% y/y contraction in 2019, Bianet reported.

The unadjusted industrial production figure given by TUIK for September was a positive 4.6% y/y.

Weakness concentrated in manufacturing
The breakdown of the data showed that the weakness borne out by the adjusted data was concentrated in the manufacturing sector, according to Tuvey.

Manufacturing output dropped by 3.2% y/y in September, compared with growth of 1.2% y/y in the previous month. Within manufacturing, growth weakened in 15 out of the 24 subsectors.

“There was pronounced weakness in sectors that produce big-ticket items, such as furniture and electrical products, which is probably a sign that the sharp rise in inflation and weak confidence is causing consumers to hold off from large purchases. That said, the fact that a number of other sectors have held up fairly well might reflect the boost to Turkey’s competitiveness from a weaker lira,” Tuvey also said, adding: “The worst probably isn’t over yet. While the PMI edged up in October, it is still consistent with industrial production contracting by as much as 7-8% y/y in the coming months”.

“Private sector balance sheets are susceptible, at varying degrees, to external debt rollover risk and lira depreciation. Under the currently improving, yet fragile, investor sentiment, Turkey’s sizeable amortization payments will continue to expose the economy to high rollover risk through 2019,” Ugras Ulku of the International Institute of Finance (IIF) said on November 15 in a report.

The Turkish private sector had obligations to repay $66.3bn in foreign-loan principal payments within one-year as of end-September, the central bank said on November 15.

Turkey was obliged to repay a total of $176bn in foreign debt within one-year as of end-September, the central bank added on November 16.