Turkey: Industrial production increased sharply in September

Turkey: Industrial production increased sharply in September

At 6.2% y/y, September's industrial production index beat the market consensus (2%) and our more optimistic forecast (3.4%). On a seasonally adjusted basis, industrial production increased by 3.9% m/m, following a 2% m/m decline in August, which waspartly due to the Ramadan effect. As a result, in Q3, industrial production increased by 0.9% q/q. Should IP remain flat till the year end, this would translate into a 1.9% q/q increase in Q4.

The pickup in IP was driven by durable consumer goods (13.1% m/m) and capital goods production (10.8% m/m) on a seasonally adjusted basis. Intermediate goods production and undurable consumer goods production increased by 2.5% m/m and 3.5% m/m respectively, on our calculations. Motor vehicles production increased by 17.7% m/m in September, from -13.9% m/m in August. Similarly, textile production increased by 3.6% m/m following a 2.2% m/m decline in the previous month. Non-metallic minerals production, a strong proxy for construction activity, increased by 4.9% m/m and reached its highest level in 2012.

Economic activity is gaining pace towards the year-end as evidenced by the strong September IP reading. The increase in PMIs, rising business confidence and imports, as well as the pickup in credit growth, induced by the CBRT’s loose monetary policy, all suggest that economic activity continues to strengthen in Q4. Against this backdrop, following the rating upgrade, the CBRT is likely to maintain its accommodative policy stance. Therefore, we continue to expect the CBRT to cut the ceiling of the interest rate corridor by 50bp in the next MPC meeting on 20 November.