Turkish industrial production posted higher-than-expected growth as it climbed 10.2% year-on-year in October, official data showed Monday.
The output rose for a fifth straight month in a recovery from a slowdown caused by a lockdown for the coronavirus pandemic that was lifted in June.
Month-on-month, production was up 1.1% in October on a calendar and seasonally adjusted basis, the Turkish Statistical Institute (TurkStat) said.
The data showed a continuation of the strong recovery pattern since June following the easing of lockdowns from the first wave of the outbreak.
Turkey had the strongest outlook among countries whose October data was announced, Industry and Technology Minister Mustafa Varank said.
The first virus infection was registered in Turkey in March, and soon after, many factories halted operations, leading to drops in production of 31.4% in April and 19.9% in May before the recovery started in June.
The median estimate in a Reuters poll of six institutions projected year-on-year growth of 9% in the calendar-adjusted industrial production in October. Forecasts ranged between 7.1% and 10.5%.
A group of seven economists, surveyed by Anadolu Agency (AA), forecast an 8% rise on an annual basis in the output in the month.
After the decrease in production in the April-May period, the strong increase in momentum has continued since June and July, said Enver Erkan, an economist at Istanbul-based Tera Yatırım.
“Particularly in 3Q20 (the third quarter of 2020), when demand was strong, this situation had reflections in the automotive, white goods and many other sectors. Demand conditions abroad also contributed positively with the recovery effect in the said period,” Erkan said in a note.
The manufacturing index saw the highest year-on-year rise among industrial subsectors, with 11%, the data showed.
The electricity, gas, steam and air conditioning supply index went up 5.5%, while the mining and quarrying index rose 0.4% during the same period.
The term “calendar-adjusted” is used to refer to data without the calendar and holiday-originated effects.
On a monthly basis, among all subsectors of the seasonal and calendar-adjusted industrial sector, manufacturing was the only subsector to see a month-on-month recovery in October, rising by 1.4%.
The electricity, gas, steam and air conditioning supply index dropped by 2.5% from September.
The mining and quarrying index fell slightly by 0.6% in the same period.
Potential slowdown
In an evaluation of the data, ING said the industrial production continued to rebound, with stronger than expected October data confirming the persistently strong activity.
“However, we will see momentum fade going forward with ongoing financial tightening and rapid credit deceleration,” it noted.
Varank pointed to a potential slowdown in the output due to the second wave of the pandemic.
“In the upcoming period, we expect a slowdown in industrial production due to the second wave of the pandemic and the decline in credit growth,” Varank wrote on Twitter.
The country targets expanding value-added production through accelerating technological and digital transformation, he underlined.
“In order to achieve these goals, we will strengthen financial stability by further improving predictability with a strong coordination in economic management,” Varank said.
Driven by fiscal stimulus and the lifting of virus-related lockdowns, Turkey’s gross domestic product (GDP) grew 6.7% year-on-year in the third quarter after contracting by 9.9% in the previous three months when lockdowns were imposed to curb the initial COVID-19 wave.
The momentum achieved on the industry side in the third quarter continues, Erkan said.
"Although the effect of the shutdowns brought along some measures in the working order of the factories, activity was maintained in the production line in general," he said.
He suggested that the current momentum in industrial production can be maintained.
Certain sectors have been affected by the pandemic and continue to be affected within the framework of current shutdown measures.
The overall impact of restrictions is felt mostly on the service sector side, particularly restaurants and tourism, Erkan said. On the industrial side, Erkan noted, the activity continues with the effect of being excluded from the scope in order not to interrupt production activities.
“We will look to see if the momentum in the industry will continue as clearer data become available on the effects of the pandemic and the extent of the measures,” he said.
Erkan also warned of risks on the demand side.
He said both the limitation of domestic demand and the impact of the shutdown measures abroad pose a risk.
“All over the world, there are vaccine expectations. Raw material prices have risen from the exchange effect inside, and there is an increase in prices in the world with vaccine hopes and expectations for improvement. A vaccination, economic incentives, normalization and its economic recovery effect will be determining factors in terms of growth momentum,” Erkan said.
Strong trend in retail sales
ING also pointed to the upward trend in retail sales, which it said has maintained strong momentum.
Retail sales volume jumped 12% year-on-year in October, TurkStat announced Monday.
Month-on-month, sales surged 4.2%, the data showed.
“Overall, industrial production continued to rebound in October while retail sales also maintained strong momentum with a 4.2% MoM (month-on-month) increase, translating into a yearly growth rate of 12% YoY (year-on-year),” ING noted.
Both series confirm still-strong activity, though it said “we will likely see a deceleration going forward with ongoing financial tightening and rapid credit deceleration.”