Manufacturing

Turkish industrial output hamstrung by falling demand

August 9, 2024, 12:31 PM

Workers in a Turkish textile factory. Consumer goods output is down 9 percent year on year

Industries scale back production
Manufacturing down by 7%
Government battling inflation

Output from Turkey’s factories plunged in June, with many of the country’s main industries scaling back production due to high input costs and weakening demand.

Industrial output dropped 2 percent month-on-month in June and by 5 percent year-on-year, according to data issued by Turkstat, the state statistics agency, on August 9.

The annualised fall was the sharpest since February 2023, when twin earthquakes hit the country’s south, leaving more than 50,000 dead and causing massive damage to industrial plant and logistics capacity.

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The government has been working to cool the economy and tame inflation, which eased to a little under 62 percent in July, in part due to the Central Bank maintaining its main borrowing rate at 50 percent.

Öner Günçavdı, professor of economics at Istanbul Technical University, said the fall in industrial output was no surprise, with more likely to come in the short term.

“This narrowing was to be expected and its impact will further increase in autumn,” he told AGBI. “The problem is this narrowing inflation has to be tackled, which could lead to a perfect storm of stagnation in a high cost of living environment.”

While the 12-month rolling inflation data fell in July, month-on-month the consumer price index increased 3 percent, contrary to the government’s objectives.

“If the monthly inflation rate in August and September comes in at around 3 percent again, the programme’s credibility will be gone,” warned Günçavdı.

Among the worst impacted sectors were manufacturing, which sank 7 percent year on year. Durable and non-durable consumer goods, both down 9 percent, indicating slowing demand in the domestic market.

Turkstat’s latest monthly consumer confidence index, issued in late July, fell to its lowest level since December last year, slipping to 76 points from the previous month’s 78.

The sub-index on expectations for the economy for the coming 12 months fell even further, to 71 points. Any reading below 100 on the index indicates a negative outlook.

Output from Turkey’s technology sector also sank in June, with falls in the low, medium and high end tech production segments on an annualised basis.

While overall output fell there were gains by the utilities sector and the mining industry. They saw production rise by 8 and 2 percent respectively for the month. The former was in response to higher electricity demands for air conditioning and by the tourism sector in the hot summer.