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4.1 Industrial production
Recession-hit Turkey’s calendar-adjusted industrial production index contracted for a seventh consecutive month in March, data from national statistics office TUIK showed on May 14. The drop of 2.2% y/y in the month was the lowest of the declines registered across the seven-month-long uninterrupted period of contraction. Prior to the industrial data release, a Reuters poll predicted a 4.25% y/y fall in the calendar-adjusted industrial output index for March. The seasonally and calendar-adjusted index was in positive territory for the third consecutive month. It was up 2.1% m/m in March. However, it should be noted that the latest Purchasing Managers’ Index (PMI) manufacturing release for Turkey observed the temporary support laid on by the state as a pre-election stimulus prior to the end-of-March local elections. The headline PMI for Turkish manufacturing declined to 46.8 in April from 47.2 in March, signalling a further moderation in business conditions in the sector, IHS Markit said on May 2.
Official sign of stimulus. On the other hand, Turkey’s Finance Minister Berat Albayrak lately announced that three public lenders are to launch a fresh loan package in May-June to support manufacturing, an official sign of a fresh pre- election stimulus period to be set in place during the build-up to the controversial Istanbul revote scheduled for June 23, which Albayrak’s father-in- law, President Recep Tayyip Erdogan, is counting on winning to reassert his claim to have the Turkish people behind him. The Turkish economy contracted 3% y/y in the last quarter of 2018 and economic activity has remained slow since then. Industrial production contracted by 7.7% y/y on average in Q4 last year while a 4.9% y/y decline in industrial output was posted in the first quarter of 2019. The central bank's policy rate has stood at 24% since September. Officially, annual CPI inflation hovers around 20% while PPI inflation remains above 30%.
“The much better-than-expected 2.1% rise in Turkish industrial production in March adds to signs that the economy grew in Q1, by around 0.5-0.8% q/q. But the recent tightening of financial conditions means that the economy could contract again in Q2, supporting our view that the recovery will be slow and bumpy,” Jason Tuvey of Capital Economics said in a research note. “To a large extent, the economy was probably helped by stimulus measures pushed through ahead of local elections at the end of March. Further stimulus may be implemented ahead of next month’s re-run of the Istanbul mayoral election. For what it’s worth, the manufacturing PMI points to a further improvement in industrial activity in the coming months. However, the impact of this is likely to be blunted by the fallout from the recent sell-off in Turkish financial markets. Financial conditions have tightened and point to the economy contracting in Q2 at a similar pace to Q4 2018,” Tuvey added. Capital Economics remains comfortable with its below-consensus
26 TURKEY Country Report June 2019 www.intellinews.com