Turkey’s manufacturing sector weakens for sixth month

• Slight improvement on November
• New orders slowed down
• Lira at record low

Turkey’s manufacturing sector deteriorated for a sixth straight month in December although the industry fared slightly better than in November, data published on Tuesday showed.

The Istanbul Chamber of Industry’s Turkey PMI Manufacturing Index registered 47.4 in December, up from 47.2 a month earlier. A figure below 50 indicates the sector is contracting, while above 50 suggests it is expanding.

The report is produced by S&P Global on behalf of the chamber.

It said: “Market conditions were challenging both domestically and abroad, resulting in a slowdown in new orders and scaling back of production. Output has now softened in six successive months.”

• Turkey’s minimum wage hike may elevate inflation further
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• Turkish business conditions show tentative signs of improvement

More positively, production cost increases slowed to a seven-month low and selling prices rose at a slightly greater pace, the report estimated.

The index incorporates five metrics: new orders, output, employment, suppliers’ delivery times, and stocks of purchases.

Employment was steady in December, “with firms keen to keep workforce numbers stable heading into the new year,” Andrew Harker, economics director at S&P Global Market Intelligence, said in the report.

The manufacturing slump coincides with a steep increase in Turkish benchmark interest rates as Turkey’s president, Recep Tayyip Erdoğan, seeks to tame soaraway inflation after his re-election in May 2023.

Since then, Turkey’s central bank has raised interest rates to 42.5 percent from 8.5 percent. Erdoğan had previously claimed that high interest rates were the cause, not a cure for inflation, and before last May’s presidential and parliamentary votes, Turkey slashed rates and encouraged state-owned banks to expand lending to boost the economy.

Annual inflation in November was a 2023 high of 61.98 percent.

“The potential for a more subdued inflationary environment in 2024 could provide some hope for a demand recovery in the [manufacturing] sector,” Harker said.

The Turkish lira slumped to a record low against the dollar on Tuesday and has lost more than a third of its value versus the US currency in the past year, the currency exchange website xe.com said. In the past decade, the lira is down 93 percent against the dollar.

It was trading at 29.70 lira to the dollar at 10:00 GMT on January 2; experts have forecast the rate could fall to 40 to the dollar by the end of 2024.