Turkish factory output beats forecasts to jump 14.4%

Turkey’s industrial production jumped more than expected in December and registered the highest rate of growth in six months, official data showed Friday.

The output surged 14.4% year-over-year in December, the Turkish Statistical Institute (TurkStat) said, rising for the 18th consecutive month in a sustained burst of economic activity since the lifting of coronavirus measures.

The reading exceeded forecasts of 11.2% and 10.8% projected in Reuters and Anadolu Agency (AA) polls, respectively.

The production remained strong despite high volatility in the Turkish lira that month, which deterred company and household budgets and sent inflation soaring via import prices.

Analysts expect jumps in utility prices and scattered curbs to power use to weigh on industrial production in January, after Iran had cut gas flows to Turkey for up to 10 days due to a technical failure.

While the mining and quarrying sector posted negative results, the manufacturing industry and the electricity, gas, steam and air conditioning supply indices were on the positive side, the data showed.

The mining and quarrying sector index dropped 1.4% year-over-year in December.

The manufacturing industry and the electricity, gas, steam and air conditioning supply indices were up 16.2% and 8%, respectively, over the same period.

Enver Erkan, a chief economist at Istanbul-based Tera Yatırım, said they expect a loss of momentum in January.

“Iran’s cessation of gas supply and consequent electricity and gas cuts in the industry led to suppression of production. We take into account that we will see the effect of this in the January data. Due to supply problems, the upward trend in raw material prices continues,” Erkan said in a note.

In April of 2020, output plummeted more than 31% in the face of the initial coronavirus wave, but it has since made a strong recovery since subsequent measures largely skirted the manufacturing sector. All virus measures were lifted in July last year.

Double-digit 2021 growth

Turkey’s economy is expected to have grown around 10% in 2021, rebounding powerfully after a sharp slowdown a year earlier driven by COVID-19 restrictions.

Erkan said the latest data reaffirmed the double-digit growth in 2021.

“Our growth expectation for 2021 is 10.8%. In 2022, we will consider factors such as the developments in the exchange rate, the economic slowdown caused by the global supply shortage,and the problems that the omicron variant may cause, especially in our export partners,” he said.

“We expect the growth to normalize towards the 4% band this year.”

Month-over-month, industrial output rose 1.6% in December on a calendar and seasonally adjusted basis, TurkStat said.

The mining and quarrying sector index dropped by 3.4% month-over-month. The manufacturing, and gas, steam and air conditioning supply indices were up by 1.8% and 0.6%, respectively, versus November.

The Turkish government has been endorsing a model based on lower borrowing costs, which it says will boost production, employment and exports, and also eventually help Turkey solve the chronic current account deficit problem and contribute to stabilizing the Turkish lira.

To support the drive, Turkey’s central bank has slashed its interest rates by 500 basis points since September to 14%, before pausing the easing cycle last month.

The lira had weakened 44% last year and hit a record low of 18.4 against the United States dollar in late December but rebounded after President Recep Tayyip Erdoğan’s announcement of a scheme to boost lira deposits by protecting them against depreciation.

The initiative had helped the lira rally sharply to just over 10 and then settle at current levels just under 14 to the dollar.

The decline in the lira stoked prices and caused inflation to jump to 48.7% in January.

A central bank survey of market participants’ expectations on Friday showed consumer price inflation was seen ending 2022 at 34.06%, up from 29.755 in the previous survey, with gross domestic product (GDP) growth forecast to be 3.7%.

The lira, which has traded steadily so far this year, was flat at 13.54 against the dollar on Friday. The central bank survey showed it was seen ending the year at 16.04, down from the previous forecast of 16.13.

Retail sales volume jumps

Separately, Turkey’s retail sales volume, a marker of growing consumer spending, surged 15.5% year-over-year in December, TurkStat data showed, with all sub-indices posting increases.

Non-food (except automotive fuel) sales increased by 28.2% in December, compared to the same month in 2020. Automotive fuel sales were up by 2.8%, while that of food, drinks and tobacco increased by 1.7% over the same period.

Among non-food items, textile, clothing and footwear sales rose the most, climbing 77.3% from December 2020, followed by medical goods and cosmetics (16%) and computers, books and telecommunications equipment (13.1%). Sales by mail order and the internet soared 34.1% year-over-year in December.

Turnover surges

On a monthly basis, the retail sales volume dropped by 2.7% over the month.

Separate TurkStat data on Friday showed that the economy posted an 82.4% annual jump in total turnover in December.

The biggest change came in industry, which shot up 101.4% on an annual basis, the institute said. The construction sector saw an annual rise of 46.4%, while the services and trade indices climbed by 82.9% and 77.6%, respectively.

On a monthly basis, the seasonally and calendar-adjusted total turnover index was up 12.8% in December. “Industry increased by 20.1%, trade increased by 11.0%, services increased by 7.6% and construction decreased by 4.6% on monthly basis in December 2021,” TurkStat said.


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