Turkish manufacturing faces stifling cost pressures

Reuters

• Turkish PMI for manufacturing was 51.5 in June, showing growth
• Job creation rose to meet production demand and for reconstruction
• Weak lira and cost pressures meant order growth was ‘only marginal’

Turkish manufacturing output grew by the end of the second quarter, but new order growth softened and price pressures mounted because of currency depreciation, the latest industry tracker showed. 

The headline Purchasing Managers’ Index (PMI) for manufacturing, from Istanbul Chamber of Industry and S&P Global, stood at 51.5 in June.

This was the same as the previous two months and remained above the 50-point line that separates expansion from contraction.

The PMI is derived from indicators such as new orders, output, employment levels, supplier delivery times and stocks of purchases. 

• Turkey hikes interest rates in attempt to curb inflation 
• Construction workers on the up as Turkey rebuilds
• Gulf sees potential in Turkish energy and defence

June’s figure signalled “a further modest improvement in the health of the manufacturing sector”, as business conditions have now improved in each of the past six months, the report noted.

In particular, output was up for the fourth consecutive month, with the rate of growth the fastest since July 2021. 

The rise in production was attributed to higher demand and the country’s ongoing recovery from the February earthquake. There was also an uptick in business activity following the election period, which ended with the surprise re-election of Recep Tayyip Erdoğan at the end of May.

New orders rose for the fourth month running, but the rate of increase was “only marginal and the softest in the current sequence of expansion”.

The report said this was partly a result of the depreciation of the Turkish lira against the US dollar, which is contributing to cost pressures overall.

Exchange rate fluctuations pushed up both input cost and output price inflation in June – the former rose at the fastest pace in almost a year, according to the index. Meanwhile, suppliers’ delivery times increased as vendors struggled to meet demand. 

Backlogs of work increased for the second time in the past three months, while job creation rose as firms took on more staff to help meet higher production requirements. 

Andrew Harker, economics director at S&P Global Market Intelligence, said Turkish manufacturing production “kicked on nicely in June, and the goods-producing sector as a whole finished the first half of the year in broadly positive shape as demand improved further”. 

However, he added, “the familiar foe of currency weakness” limited growth in new orders and halted the recent easing of inflationary pressures. 

“More positively, manufacturers continued to expand their employment levels and purchasing activity, suggesting that they remained optimistic about prospects for the second half of the year.”