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Turkish factory activity slows as new order growth weakens

Turkey UK trade: A bus production line at a factory in Arifiye, Sakarya province. Vehicles are one of Turkey's main exports Reuters/Umit Bektas
Economists said the wage hike was set to cause a medium-term deterioration in the outlook for inflation

Turkish factory activity contracted for a second month in August due to a slowdown in new orders as firms faced challenges securing business, a survey showed on Friday.

The purchasing managers’ index (PMI) for manufacturing fell to 49.0 in August from 49.9 in July, according to the survey by the Istanbul Chamber of Industry and S&P Global, dropping further below the 50-point line that denotes growth in activity.

Firms said the key factor deterring customers from committing to new orders was strong price pressure as input costs increased sharply due to the lira’s weakness against the US dollar as well as to rising wages.

Output prices also increased, with survey contributors reporting scaling back production and purchasing activity due to a slowdown in new business.

Nevertheless, employment increased for the fourth month running as some firms kept hiring, the survey showed.

“It was a familiar story for the Turkish manufacturing sector in August, with price pressures acting to restrict demand and leading to a general moderation of business conditions,” said Andrew Harker, economics director at S&P Global Market Intelligence.

“The rate of job creation was only fractional so it remains to be seen if this growth will continue should demand conditions remain subdued,” he added.