Turkish manufacturers buoyed by rise in PMI

Reuters/Umit Bektas

• Turkish exports continue to rise
• ‘Solid growth’ in months ahead
• Warning over ‘election economy’

Turkish producers are cautiously optimistic after the Turkey Production Managers Index (PMI), which measures the outlook of the country’s manufacturing sector, returned to positive territory in February.

According to the latest report issued by the Istanbul Chamber of Commerce and Standard and Poor’s, this is the first increase after seven straight months of contraction. 

The February index, released on Friday, edged up to 50.2, just above the cut-off point between growth and retreat, headlined by managers’ expectations of higher domestic demand, improved export sales to European markets and an easing of input prices. 

• Turkey sets bold targets for trade with the Gulf
• Turkey’s exports hit all-time high of $256bn in 2023
• Turkish manufacturing faces stifling cost pressures

Producers are hoping spring will bring a boost in capacity usage, output and exports, though an improved outlook has yet to translate into increased plant investment. 

Andrew Harker, S&P Global Market Intelligence’s economics director, said the trends revealed in the PMI report were promising. 

“A renewed expansion in output provided a boost to the Turkish manufacturing sector in February and suggests that we should see some solid growth numbers come through in the official data in the months ahead,” he said.

Some of the solid numbers Harker was looking for are already coming out, with Turkey’s exports up 3.5 percent year on year in January to $20 billion, according to data issued by the statistics agency Turkstat on February 28. 

This narrowed the trade deficit to just over $6 billion for the month as imports dropped 22 percent on the January 2023 total to $26 billion. 

This growth was also reflected in the Turkish central bank’s recent Real Sector confidence index, which indicated producers’ outlook had shifted strongly into the positive. 

The index, released late February, showed expectations for output and taking on new staff over the coming three months all increasing steadily, while the outlook for export orders was up from 106.3 to 112.2 points, the highest level in seven months.

There was however one category that saw contraction: investment in new production capacity. Though still in positive territory, survey respondents were marginally less confident about making new fixed investment expenditures, with the sub-index down to a still positive 114.4 points, its lowest level since January 2021. 

Despite the positive data, there are those sounding a note of caution.

At least some of the domestic growth and improved sentiment comes as a result of what economist Güldem Atabay calls Turkey’s “election economy”; higher spending by political parties and administrations ahead of municipal elections set for March 31.

“The positive feeling due to ‘election economy’ is not sustainable,” she told AGBI. “The main aim is to fight inflation and follow stricter monetary policies so I do not believe the increase in capacity can be sustained.”

However, any renewed slowing of domestic demand due to tighter monetary policies would be partly offset by an improvement in the global economy and stronger export performance in the second half of the year, Atabay predicted, supporting reel sector activity.