Turkey’s calendar-adjusted industrial production index moved up 1.7% y/y in August, pointing to a less-severe-than-expected slowdown in the month, data from national statistics office TUIK showed on October 16. The figure compared to the 5.6% annual growth registered in July

“Surprisingly resilient again...after upbeat July print...softer indicators meanwhile continue to collapse, suggesting still that the downturn in terms of harder data is still coming...,” Timothy Ash of Bluebay Asset Management said in an e-mailed comment.

Markets had expected 1.25% y/y of industrial production growth in August, according to a Reuters poll. A Bloomberg survey concluded there was an expectation for 1%.

Analysts are keeping a keen eye on the data as they assess whether Turkey is set for a steep recession as a consequence of its currency crisis and wider financial difficulties.

“Turkish industrial production held up better-than-expected in August but there are clear signs that underlying growth in the sector is losing momentum. The effects of the recent currency crisis and dramatic tightening of financial conditions will continue to weigh on activity over the coming months and we expect Turkey to experience a deep recession,” Jason Tuvey of Capital Economics said in a research note entitled “Growing signs of weakness”.

Capital Economics doubted that August’s industrial data fully reflected the impact of the currency crisis and sharp tightening of financial conditions in that month.

The latest survey data point to a sharp slowdown in the coming months. September saw the headline Istanbul Chamber of Industry Turkey Manufacturing PMI (Purchasing Managers’ Index) fall a further 8% m/m. That took it to 42.7, the lowest point seen since March 2009’s 37, IHS Markit said on October 1. The decline followed the 5% m/m drop to 46.4 in August.

“On past form at least, that is consistent with industrial production contracting by 7-8% y/y. And there is plenty of other timely evidence to suggest that domestic demand has been hit hard,” Tuvey also said, adding: “This will filter through into further weakness in the industrial sector and we remain comfortable with our view that the Turkey will experience a deep recession.”

Economic confidence plunged
Turkey’s economic confidence index plunged by 15.4% m/m to 71 in September, data from national statistics office TUIK showed on September 27. It was the biggest drop seen since November 2008.

Turkey’s business sentiment index declined for a sixth consecutive month in September, with a 6.8-point month on month drop taking it to 89.6, a level that was the lowest recorded since April 2009, central bank data showed on September 24.

Another indicator of the hard landing Turkey may endure came as Turkish carmaker Tofas announced it was to suspend production at its Bursa plant for nine days in October given the contraction in demand seen in its domestic market. The company announced the move on September 26 in a bourse filing.

Manufacturer of porcelain and ceramic decorative tableware, packaging materials, and floor and wall tiles Kutayha Porselen said on September 29 in a bourse filing that it had decided to limit its packaging materials production to only meet its group companies' needs due to unprofitable market conditions.

Volatile seasonal and calendar-adjusted industrial production data showed a 1.1% m/m contraction in August, pointing to a decline in industrial output for the third time in four months, while the unadjusted index reflected a 11% contraction due to the nine-day-long public holiday in the month.

The breakdown of the data showed that the slowdown in industry was concentrated in the manufacturing sector, according to Tuvey. Within manufacturing, growth weakened in all but four of the 24 sub-sectors. There was pronounced weakness in the output of motor vehicles, probably a reflection of the plunge in local car sales over the past few months.

On a calendar-adjusted basis, mining and quarrying output surprisingly led growth with 6.1% y/y while durable household goods production contracted by a sharp 7.3% y/y.

Total white goods production declined by 14% y/y to 2.03mn units in August and by 4% y/y to 16.38mn across the first eight months, data from the White Goods Manufacturers’ Association of Turkey (Turkbesd) showed on September 20.

Auto production declined for a sixth consecutive month but at the much reduced pace of 1% y/y to 132,931 units in September thanks to strong growth in exports, after plunging by 34% y/y in August, data from the Turkish Automotive Manufacturers’ Association (OSD) showed on October 12.

Uninterrupted 23 months
Industrial production in Turkey has now stayed in annual growth territory for an uninterrupted 23 months running from October 2016 to August this year. Growth peaked with the 14.5% gain seen in July last year due to the base effect caused by the failed coup attempt in July 2016, after which Turkey hit an economic soft spot.

A 13.7% y/y rise was posted in December last year after which the annual growth rate declined for six months in a row.

Industrial production grew 4.3% y/y in the second quarter of 2018, down from 8.1% y/y in the first quarter, according to the latest GDP data. In Q1 2018, average monthly calendar-adjusted industrial production growth stood at 10% y/y but it slowed to a revised 5.2% y/y in the second quarter.

Average annual industrial production growth slowed to 8.9% in 2017 from 3.4% in 2016, according to TUIK’s revised series of data. The previous data set pointed to average annual growth of 6.3% in 2017 and 1.8% in 2016.

Turkey’s manufacturing boom last year and early this year was substantially founded on the government's TRY250bn credit guarantee fund (CGF) for backstopping bank loans to businesses. Following the attempted coup and the brake it put on growth, Turkey spurred the economy by upping spending across the board, hiking wages, pouring capital into investments and guaranteeing loans with the CGF.

State-backed incentives have lost pace in 2018 despite the June 24 snap polls. Turkey is due to hold local polls in March 2019.

The government recently cut its 2018 GDP growth target to 3.8% from the previous 5% due to the failing economy, according to the new economy programme.

The International Monetary Fund (IMF) has cut its growth outlook for Turkey to 3.5% in 2018 and 0.4% in 2019 in the latest edition of its World Economic Outlook.