Turkey: July industrial production falls by 6.2%

In July, industrial production in Turkey increased by 2.4% compared to the same month of the previous year, according to calendar adjusted data; Seasonally and calendar adjusted industrial production decreased by 6.2% compared to the previous month. According to unadjusted data, industrial production increased by 3.1% compared to the same period of the previous year.

It is obvious that industrial production showed a seasonal decrease in the same month of the previous year, and at the same time, with the slowdown in the industry due to the holiday holiday in July, when we consider that the data we analyzed is adjusted for seasonal and calendar effects, it also points to a significant loss of momentum. In this respect, we will have to address some of the main factors in the 6.2% sharp decline, and most of this is related to the downside risk reflections on the economy. On an annual basis, the slight upward movement due to the base effect indicates a moderate trend. Factors such as the effect of the global slowdown on the Chinese side on world trade, the global contraction in foreign trade, which is evident from the recent significant declines in the Baltic dry cargo index, the rise in energy costs, and the decrease in the EURUSD parity below 1, negatively affect exports and thus production.

When we look at the details; While mining and quarrying decreased by 2.6% on a monthly basis, it contracted by 10.5% on an annual basis. While the manufacturing industry contracted by 6.6% on a monthly basis, there was a 4.1% growth on an annual basis. In the electricity, gas and steam group, there was a 3.1% contraction on a monthly basis, and a contraction of 6.8% on an annual basis. On a monthly basis, durable consumption goods decreased by 8%, non-durable goods decreased by 7.2%, capital goods by 6.2%, intermediate goods by 6.1% and energy by 2.3%. Looking at the annual changes in the related items; capital goods increased by 10.8% and non-durable consumer goods increased by 5.9%; energy decreased by 3.6%, durable consumer goods and intermediate goods decreased by 0.6%. When the technology groups are examined, the calendar adjusted data show that the low technology group contracted by 6.7%, the medium-low group by 6.2%, and the medium-high group by 8.6%. The high technology group, on the other hand, increased by 2.1%.

On the European side, unanticipated economic conjuncture movements increase the uncertainty range. Therefore, there is a very serious risk in energy costs due to the Russia-Ukraine crisis and some shutdowns. This keeps the probability of a recession in the EU high. The ongoing rise in the exchange rate will make it costly to obtain inputs from the outside world and the impact of the ongoing global supply shortage on raw material and energy costs will cause difficulties in the activity. On the European side, we find the spillover effect of the industrial and demand stagnation caused by energy cuts to be risky in terms of both exports and production. The fact that Turkey’s annual economic growth will not be like the first 2 quarters has also been demonstrated by the industrial production data announced. The next August industrial production data will be released on 12 October. It seems likely that the growth will slow down to the 5% band throughout this year.

Another factor that concerns the industry is related to the Central Bank’s policy and practices. While the Central Bank wants to keep the policy rate low, it announces some measures that will make the credit side selective and tighten the financing conditions. The fact that the new economy model has a game plan to give a surplus on the current account balance, while the increase in exchange rates makes imports more costly, and on the other hand, the fact that the exchange rate-protected accounts yield more than interest is also slowing down in terms of investment and production trends. While investment wants to create growth and employment, the current account deficit is growing, whereas the economic model to be implemented aims the opposite on the current account balance side.

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