Turkish manufacturing recovery loses ground, prices rise sharply

A recovery in Turkey’s manufacturing industry stalled in November due to a second wave of the COVID-19 pandemic, according to a benchmark survey.

The purchasing managers’ index (PMI) for Turkey fell to 51.4 last month from 53.9 in October, the first decline since an uptick in manufacturing activity in June, IHS Markit and the Istanbul Chamber of Industry (ISO) said on Tuesday. Any reading above 50 indicates improvement in the sector.

“The main challenge for firms in November revolved around increasing COVID-19 case numbers in Turkey, which impacted negatively on customer demand and production processes,” IHS Markit and the ISO said.

“As a result, both new orders and output eased. New export orders also slowed. In all cases, however, the rates of moderation were much weaker than those seen during the worst of the first wave of the pandemic earlier in 2020,” they said.

A slide in the value of the Turkish lira led to further sharp increases in both manufacturers’ prices and input costs, although the uptick was less than observed in October, IHS Markit and the ISO said.

The lira has lost about a quarter of its value this year after the central bank kept interest rates at below the rate of inflation. The low rates of interest contributed to a borrowing boom that widened the country’s current account deficit. The lira’s weakness prompted many Turks to buy foreign currency to protect their savings.

Turkey’s annual producer price inflation rate jumped to 18.2 percent in October from 14.3 percent the previous month after the lira slid to consecutive record lows against the dollar. The currency has since recovered from an all-time low of 8.58 per dollar in early November to trade at around 7.9 per dollar. Consumer price inflation stands at an annual 11.9 percent.  

“With the Turkish lira gaining some ground recently, we could see a further moderation of inflation in the months to come,” said Andrew Harker, economics director at IHS Markit.

Manufacturers were still confident enough to maintain job creation during November and the sector has shown before that it can rebound quickly from a disruption caused by the pandemic, Harker said.