Turkey's Industrial Production Decelerates to 2.7% in June

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Researched by Industrial Info Resources (Sugar Land, Texas)--Turkey's industrial production contracted in June 2012, with the year-on-year (YoY) expansion declining to 2.7% from 5.9% in May. The month-on-month change in the working day and seasonally adjusted number at -2% was also weaker in comparison to previous months this year.

Deceleration in June 2012 was deeper than expected, while second-quarter industrial production figures point to a marginal increase in economic activity, which is pretty much in line with the base case scenario of the Central Bank of Turkey.

According to the data released by the Turkish Statistical Institute (TURKSTAT), the production index of the manufacturing industry in June 2012 increased 1.8% compared to the same month of the previous year. The production of food dropped 6.1%, textiles dropped 4.4%, chemicals 3.8% and motor vehicles 3.4% in June.

In June 2012, the production index for the manufacture of basic metals in Turkey increased by 9.4% YoY, and was up 3.2% from May. The output index for the manufacture of fabricated metal products rose by 7% YoY, and was up by 1% compared to the previous month.

"The economy will expand in the second quarter more than the first quarter of this year in 3.2%," said Cem Akyurek, an emerging market economist in Deutshce Bank in Istanbul. "We had revised our start-of-the-year GDP [gross domestic product] forecast for 2012 from 2.3% to 3% to reflect our underestimation of growth in the first quarter."

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 Turkish authorities, economists said.

"Based on the available data, the official growth forecast of 4% for this year looks on the optimistic side," said Ilker Domac, an emerging market economist from Citigroup in Istanbul. "This, coupled with the recovery of the lira and lower-than-expected inflation readings in recent months, has led market participants to ponder whether the Central Bank of Turkey will be able deliver further meaningful easing in the second half of this year. The bank's ability to ease in the second half is fairly limited."

The central bank is using an interest rate corridor for funding banks, which gives flexibility to them to tame inflation and rein in the current account deficit, while keeping economic growth intact. The bank has been fighting to narrow the current account deficit, which ballooned in October 2011 to a record of $78.3 billion. The government is targeting 4% gross domestic product growth this year. The Turkish economy expanded 8.5% last year.

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