Turkish manufacturers waver on economic prospects

Kivanc Ozvardar/ILO via Flickr

• Turkey’s PMI edges under 50 points
• Rising costs dampen demand
• Hopes for interest rate peak

Turkey’s manufacturers are uncertain about the national economy’s prospects, with a report showing a slowing of new orders and an easing of output partly being offset by stronger inventory increases and expectations of a modest release from inflationary pressures. 

The latest survey of Turkish manufacturers, conducted by Istanbul Chamber of Commerce and ratings agency Standard and Poor’s, showed the monthly Purchasing Managers’ Index (PMI) edging back into negative territory in April. 

The index fell from 50 points in March, indicating a neutral balance between positive and negative expectations for expansion, to 49.3 in April, according to the results of the survey, issued on Thursday.

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Key to the cooling of sentiment was the continuation of a 10-month long fall in new orders, both domestically and from abroad, with manufacturers citing rising costs and high interest rates for dampened demand. 

Despite increased costs, the survey also found manufacturers have built up stocks of input materials through April, potentially indicative of expectations of a rebound in demand in the coming months. It is hoped inflation will peak at the end of the second quarter and then begin to decline.

Turkey’s government is seeking to rein in inflation, which was running at 69.8 percent in April. The central bank raised its benchmark rate from 8.5 percent last June to 50 percent to cool consumer demand.

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This policy may need more time to take effect, with production-side prices gaining pace in April – up 3.6 percent month-on-month compared with the 3.3 percent rise in March. This pushed wholesale inflation to an annualised 55.66 percent, indicating continued inflationary pressures in the medium term.

The weakening of the PMI was to be expected, according to economist Professor Dr Yalçın Karatepe, with production being impacted by high interest rates. 

“Since Turkey’s real sector is heavily based on imports we had the signs of the slowdown in last’s months foreign trade data as imports slipped,” he told AGBI. “This means Turkey’s growth in 2024 will underperform expectations.”

Those expectations, according to an OECD report also issued on May 2, are for the Turkish economy to expand by 3.4 percent this year, slower than the 4.5 percent of 2023, but up on the organisation’s estimate of 2.9 percent released in the first quarter. 

However, like Turkey’s production managers, the OECD remained cautious about inflation and pressures on consumer consumption, which could impact demand in the Turkish market.