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Turkish manufacturers struggle to regain momentum

Turkey manufacturing textile factory Alamy/Yusuf Aslan
A textile factory in Turkey: businesses increased their own selling costs in June at the lowest rate in 4½ years
  • PMI falls to 47.9 in June
  • Employment levels down
  • New orders slow further

Turkey’s powerful manufacturing sector is still pessimistic about the country’s short-term economic prospects, with new orders slowing further and reduced employment levels, a closely watched survey of confidence has revealed. 

There were, however, some hopes that a softening of inflation could herald better sales later in the year, the survey found. 

The Istanbul Chamber of Industry’s Purchasing Managers Index, which monitors manufacturing performance and prospects, fell to 47.9 points in June, down from May’s 48.4.

It was the third consecutive month the index had retreated, taking it further from the 50.0 cut-off point between expansion and contraction. 

The report, released on July 1, found that production fell for the third month running on the back of weaker new orders, resulting in a drop in materials purchases and new staff hirings, with workforce numbers falling by the sharpest rate since October 2022. 

There was however one positive out-take from the PMI report: the rate of increase of input costs continued to slow, maintaining a five-month trend. Companies increased their own selling costs in June at the lowest rate in four-and-a-half years, with the easing of output inflation having the potential to boost consumer demand in the second half of the year, the report said. 

This cautious optimism for Turkey’s manufacturing sector was supported by production inflation data issued by Turkstat, the state statistics agency, on July 3, which showed wholesale prices rising 1.4 percent for June, taking the annual rate to just over 50 percent, well down on the May figure of 58 percent. 

There was also a fall in the consumer price index. Retail inflation eased to a year-on-year rate of 72 percent for June, from the previous month’s 75 percent, with the monthly price increase of 1.6 percent being better than market expectations. 

While inflationary pressures may be easing, Mustafa Sönmez, an independent economist, warned that some of the elements contributing to the fall may be artificial. 

“One of the biggest factors in manufacturing input costs dropping is that the foreign currency rate has been kept under control,” Sönmez told AGBI. “I would not say we have disinflation yet. June inflation averages around 2 percent.”

Sönmez said he believed price rises and production cost rises in Turkey’s manufacturing sector will resume after the summer unless the government can enact stronger measures to rein in inflation, rather than just boosting interest rates, curbing state spending to weaken demand and controlling the lira to reduce import demand. 

“To get to disinflation one needs to take very harsh measures such as the IMF did in the past and we do not see that. July inflation will be low but I believe come winter, inflation will take an upwards turn.”

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