Turkey's Industrial Production Accelerates 5.9% in May with Inventory Building

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Researched by Industrial Info Resources (Sugar Land, Texas)--Turkey's industrial production index surged by a higher-than-expected 5.9% year-on-year in May. According to the Turkish Statistical Institute (Turkstat), the seasonally adjusted index gained 1.1% on a monthly basis, which is the fourth month of consecutive increases, and showed that the economic activity is set to gain some pace in the second quarter of this year.

Output was also up across sectors. Mining and quarrying increased output 4.9% month-on-month, after a fall of 5.3% in April. Energy and water production also picked up, rising by 2% following a 2.3% decline in the previous month.

Production in the manufacturing sector, which accounts for about 85% of total industrial output, increased by 0.8% month-on-month, compared with growth of 1.1% in March and 1.6% in April.

Despite weak import demand in the European Union (EU), Turkey's main export market, several major manufacturing export sectors continued to record solid year-on-year growth. Output was up 10.2% for textiles and 5.8% for iron and steel. Output of clothing and motor vehicles, which also are major exports, fell 0.5% and 1.9%, respectively.

However, the number of sectors with negative contributions declined from 10 to eight in April, while these sectors total weight in overall industrial production fell to about one-fourth of the total, the lowest level so far in 2012.

"The noted backdrop, coupled with the substantial stock drawdown in the first quarter, leads us to believe that inventory rebuilding is likely to be one of the key drivers of the robust industrial production in May," said Ilker Domac, an emerging market economist in Citigroup. "The recent data suggests that the widely expected pick-up in the second quarter and beyond may not be as strong as envisaged by the authorities. This, coupled with the recovery of the lira, has led market participants to ponder whether the Central Bank of Turkey will ease its average funding rate."

The Turkish Central Bank manages monetary policy through the effective funding rate, which is a function of the funds it supplies to the market between the floor and the ceiling of its policy corridor.

The Turkish economy grew more strongly than expected in the first quarter of 2012, with an annual rate of 3.2%. The Turkish energy sector grew 8.4% in the first quarter, while the manufacturing sector improved just 2.7% in the same period. For additional information, see July 6, 2012, article - Turkish Economy Beats Forecasts in First-Quarter 2012 with 3.2% Annual Growth Rate.

Turkey's economy expanded 8.5% last year, the second-fastest expansion of any economy in the G-20 nations, after China. The government expects growth will slow to 4% this year on weaker domestic demand and uncertainties over the global economy.

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