Cooling inflation little help for Turkey’s struggling manufacturers

Reuters/Umit Bektas

• Prices up 52% y-o-y in August
• 10 percentage point drop on July
• PMI still in negative territory

Although Turkey’s consumer inflation slowed in August to the lowest rate for nearly a year, analysts say it was not enough to help the country’s struggling manufacturing sector.

Consumer inflation in Turkey dropped almost 10 percentage points to an annualised 52 percent in August, the smallest figure since mid-2023, state statistics agency Turkstat said on September 3, with the monthly consumer price index rising just 2.47 percent. 

However, while a fall in the monthly inflation rate to less than 3 percent is good, it is not good enough, according to Professor Seyfettin Gürsel, director of Bahçeşehir University’s Centre for Economic and Social Research.

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“A monthly figure of 2.5 percent is no small number,” Gürsel said. “It is essential that inflation data in September and October comes in under 2 percent if the government is to meet its year-end target of 40 percent. It looks very hard.”

Turkey’s manufacturers are still finding life challenging, despite a newly issued survey indicating a slight improvement in their operating environment. 

The monthly Purchasing Managers’ Index (PMI), compiled by the Istanbul Chamber of Commerce and S&P Global, edged up from 47.2 points in July to 47.8 in August, figures released on September 2 showed. 

Though an improvement on the previous month, the August figure was still well short of the 50 points that would indicate expansion in Turkish manufacturing and signalled a “moderation in the health of the sector during the month”, the report said.

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The PMI paper showed manufacturers had again shed staff, though at a slower rate than in the previous three months.

Many employers scaling back on their workforce blamed softer new orders, which along with rising costs and weak demand resulted in production levels dropping at their sharpest rate in 21 months. 

Some of the outcomes of the PMI survey were also reflected in Turkey’s latest GDP figures, issued by Turkstat the same day. 

Turkey’s economy expanded by 2.5 percent in the second quarter, well below the 5.3 percent growth posted in the first, in part dragged down by a rapid deceleration in industrial activity, with a decline of 1.8 percent. 

Industry was the only major sector to slip into the red, as high interest rates and government-imposed credit restrictions aimed at reining in consumer inflation in Turkey bit deeper. 

“The cooling of the economy was to be expected, but inflation appears to be resistant,” Gürsel said. “As a result, a serious price will be paid in terms of growth and employment. This picture appeared in the second quarter and will continue.”