According to calendar adjusted data, Turkey’s industrial production in July increased by 4.4% compared to the same month of the previous year; Seasonal and calendar adjusted industrial production, on the other hand, increased by 8.4% compared to the previous month. According to unadjusted data, there was a 0.9% contraction in industrial production compared to the same period of the previous year.
We see that there is a positive data in line with the market expectations and in terms of growth rates. During the controlled normalization phase continued in July, increasing firm activities and related production trends showed that the recovery from the bottom was maintained strongly. On the other hand, we expect this trend to lose momentum as of August. The picture shown by leading indicators, especially the real sector confidence index, reveals that the recovery from the bottom after August may slow down. In the context of Covid-19 uncertainty, the increase in the number of cases can bring back containment measures or affect sectoral demand trends, which may slow production. Industrial production may also be affected, especially in terms of providing inputs to sectors affected by the pandemic. On the other hand, imports of intermediate goods, which have an important place in industrial production within the framework of exchange rate developments, remain on a fragile level. The fact that exchange rate increases, increase production costs may be another sensitivity factor. We may see a slowdown in exporting sectors, especially in the use of imported inputs.
When we look at the details; While mining and quarrying increased 5.4% on a monthly basis, it contracted by 4.9% on an annual basis. In the manufacturing industry, there was an increase of 8.6% on a monthly basis, and a growth of 5.1% on an annual basis. In the electricity, gas and steam group, on the other hand, an increase of 6.4% was seen on a monthly basis, while the increase was 1.4% on an annual basis. On a monthly basis, durable consumer goods increased by 13.2%, capital goods by 11.7%, energy by 8.4%, intermediate goods by 7.2% and non-durable consumer goods by 7.1%. Considering the annual changes in the related items; While durable consumer goods increased 19.2%, intermediate goods 6%, non-durable consumer goods increased by 3.1% and capital goods by 1.5%, energy contracted by 1.3%.
Although the July data still point to a good recovery from the bottom, we expect growth to decelerate in the late 3Q20 and 4Q20 period. Tightening in financial conditions due to exchange rate and interest rate developments will also have a slowing effect on the demand component in the economy. At the same time, we expect the slowdown in imports due to the effects of exchange rate and tax barriers to affect production and export trends, especially on the side of intermediate goods imports. In this context, the contribution of net exports to growth can be limited. We see epidemic effects, low demand of some sectors due to epidemic and restrictions, increasing input costs due to exchange rates and tightening in financial conditions as downside risk factors of growth.
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