Turkey’s March manufacturing PMI points to contraction after 13 months of growth

Turkey’s March manufacturing PMI points to contraction after 13 months of growth
By bne IntelliNews May 2, 2018

Turkey’s Manufacturing Purchasing Managers' Index (PMI) moved down from 51.8 in March to 48.9 in April, coming in at below the 50-threshold that separates expansion from contraction for the first time since February 2017, IHS Markit said on May 2. The figure is the lowest recorded since January last year.

The PMI stayed higher than 50 for 13 months in a row from March last year to March this year, having before that stayed lower than 50 in the previous 12 months.

The index was recorded at 55.7 in January - the highest level recorded since March 2011 - before posting sharp declines in the following three months in a row.

“The Turkish manufacturing PMI signalled that the sector operated under more difficult circumstances in April. Underpinning this was the moderation in new orders and slowdown in staff hiring. On a positive note, output continued to increase in the sector and export orders remained strong”, Gabriella Dickens, an economist at IHS Markit, said of the latest data.

Meanwhile, inflationary pressures remained strong in the manufacturing sector during April, the statement from IHS Market also underlined. The depreciation of the Turkish lira contributed to a sustained rise in input prices during April. In line with the trend observed in input costs, firms increased their average selling prices further at the beginning of the second quarter.

Fears that Turkey’s economy is overheating intensified on March 29 as 4Q GDP growth for last year came in at 7.3% y/y with the full-year 2017 expansion given as 7.4% after 3Q GDP was revised up 0.2pp to 11.3%.

Turkey’s manufacturing boom has been substantially founded on the government's TRY250bn (€60bn) credit guarantee fund (CGF) for backstopping bank loans to businesses. Following the failed coup in July 2016 and the brake it put on economic growth, Turkey spurred the economy by upping spending across the board, hiking wages, pouring capital into investments and guaranteeing loans with the CGF.

Turkey’s calendar-adjusted industrial production index gained 9.9% y/y in February, slowing for the second consecutive month, data from national statistics office TUIK showed on April 16. A 13.7% y/y rise was posted in December and a 12% y/y increase was registered in January.

Industrial production in Turkey has now stayed in annual growth territory for an uninterrupted 16 months from October 2016 to February 2018. It peaked with a 14.7% gain seen last July.

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.