Protests in Turkey predicted to worsen fall in industrial activity

• Index falls for fourth month
• April will be worse, says economist
• Manufacturing sector under pressure

Industrial activity in Turkey fell for a fourth straight month to a two-year low in March, hit by fewer export orders and cooling domestic demand, central bank data shows.

The decline is likely to be exacerbated by political unrest and financial fallout from the arrest last week of the mayor of Istanbul, Ekram İmamoğlu, a political opposition figure, observers believe.

After İmamoğlu’s arrest, and subsequent street protests, Turkey’s stock market had its worst week since the global financial crisis of 2008.

The central bank’s manufacturing industry capacity utilisation rate (CUR) index, one of its main economic indicators, fell to 74 percent in March, its lowest since the same month in 2023, a report issued by the bank this week said. 

The index has fallen or remained unchanged in every month since April last year, except in November when it rose to 76 percent.

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Government efforts to curb inflation by restricting domestic demand through tightening credit have put pressure on the manufacturing sector, according to Filiz Eryılmaz, chief economist with the brokerage firm ALB Yatırım and associate professor of economics at Uludağ University. A policy of trying to keep the Turkish lira relatively strong has made Turkish exports more expensive than they might otherwise be.

“The economic programme’s negative impact on industry and manufacturing continues,” she told AGBI. “There is no sign of an upward turn.”

The sectors that recorded a drop in CUR included food products, pharmaceuticals, and non-transport machinery and equipment, where CUR fell to 71 percent, its lowest in more than four years.

Modest gains

There were some positives, however, including an increase in capacity usage in the durable consumer goods and investment goods segments, although both remained below the overall utilisation rate of 74 percent. 

Some important sectors, such as automotive, electrical equipment and chemical production, had modest gains in capacity utilisation. 

The impact of the protests and political unrest in Turkey has yet to be seen in the CUR data. 

The detention on March 19 of the mayor of Istanbul and other opposition officials on charges of corruption sparked widespread protests in Turkey, weakened business confidence and brought calls to boycott companies seen as politically close to the government.

All this likely to weaken confidence and manufacturing capacity utilisation further, Eryılmaz said, as expectations of continued interest rate cuts and falling inflation are dashed.

Because foreign currency rose against the Turkish lira, “inflation went up and interest rates went up,” Eryılmaz said. 

“While the gains in foreign currency were a plus for those exporting, with inflation going up and interest rates staying up, this is a negative. I believe next month’s indicators will be worse,” she said.