Turkey: Gradual recovery in IP

Turkey: Gradual recovery in IP

At 1.6% y/y, February’s industrial production (IP) index was slightly below the market consensus and our expectation of 2%. On a seasonally and calendar adjusted basis, IP increased by 1.5% m/m, following a rise of 2.4% m/m in January and offset the 3.5% m/m contraction in December. The weaker-than-expected IP data in February hint that the economic recovery is likely to be gradual and slower than envisaged, despite the CBRT’s monetary easing. Yet, we expect the pickup in the manufacturing activity to become more visible in Q2, as suggested by the strong pace of credit growth and above 50 PMI readings.

On a seasonally adjusted basis, capital goods and durable consumer goods increased 5.9% and 3.2% m/m respectively. Manufacture of machinery and equipment increased 4% m/m. On the other hand, the growth rate of manufacturing activity in export oriented sectors was strong at 2.5% m/m for wearing apparel, at 2.2% m/m for motor vehicles and at 5.7% m/m for basic metals. IP in food products and beverages was weak at 0.2% m/m and -4.8% m/m respectively, partly due to a correction of January’s increase. The production of other non-metallic mineral products, a strong proxy for the construction sector, continued to rise (2.8% m/m).

As of the first two months of the year, IP is 1% above its Q4 2012 average and points to a gradual recovery in the domestic activity. The current pace of growth would not lead to a change in the CBRT’s policy stance. We expect the CBRT to cut its policy rate by 25 bps in the next MPC meeting on 16 April as REER remains above 120, on our calculations.

Emre Tekmen