Outlook cools again for Turkey’s manufacturers

• PMI drops for 5th month in a row
• Domestic and export orders down
• Production falls in 9 of 10 sectors

Softening domestic demand, slowing export orders and rising costs all hit Turkey’s manufacturing sector in July, leading to reductions in the workforce and a scaling back of production.

Although consumer inflation has begun to fall in Turkey, analysts were not optimistic about a respite for manufacturers in the second half of the year.

The Purchasing Managers Index (PMI) – which measures business confidence in manufacturing – fell for the fifth consecutive month in July, dropping to 47.2 points from 47.9 in June. 

The monthly decline was the sharpest since November 2023, according to the PMI report released on August 1. A reading below 50 points indicates a deterioration in outlook.

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The report, produced by the Istanbul Chamber of Industry and ratings agency S&P, also showed a weakening in new orders, leading to a cutting back of production for the fourth month in a row. This reduction was at its fastest rate in 22 months.

The slowing of new orders, both domestic and overseas, has resulted in a downturn in industrial employment. Job cuts were recorded for the sixth month in a row, marking the steepest decline since October 2022. 

Nine of the 10 industrial sectors covered by the PMI report posted falls in production in July. The 10th – clothing and leather goods – recorded a marginal increase in output, reflecting summer demand. 

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Despite this, the clothing sector posted the sharpest decline in employment, raising expectations of a slowdown later in the year

“There was little sign of any respite for Turkish manufacturers in July,” said Andrew Harker, economics director at S&P Global Market Intelligence.

“If anything, the start of the second half of the year saw an intensification of pressures, with demand, production and employment all moderating to greater degrees than in June. Firms will be hoping for a turnaround in conditions soon.”

There may be some relief in sight, however. The annualised rate of input cost increases eased in July, according to data issued by the state statistics agency Turkstat on August 5. 

Year-on-year consumer inflation stood at 62 percent in July. This is down from June’s 72 percent, but still higher than the 57 percent posted in July 2023.

The Turkish government’s plan to curb inflation – which includes high interest rates, controlling exchange movement and restricting access to credit – is affecting all manufacturing sectors, according to Professor Emre Alkin, an economist at Topkapı University in Istanbul. 

“There have been short-term successes but no long-term gains,” he told AGBI.

“The economy management team may show that as a long-term success but that would be a mistake. For those in Turkey such as exporters who work and earn in foreign currency, there is no further capacity to continue.”