The factory activity in Turkey expanded more than expected in February, data showed Tuesday, rising for a 20th consecutive month in a sustained burst of economic activity since the lifting of coronavirus measures.
Seen as a preliminary indicator of economic growth, the country’s industrial production index expanded 13.3% year-on-year in February, the Turkish Statistical Institute (TurkStat) said.
All sub-indices backed the index this month, especially mining and quarrying, along with manufacturing, the data showed.
The manufacturing and mining and quarrying indices rose by 14.4% and 6.1% year on year in February, respectively.
The supply index for electricity, gas, steam and air conditioning was also up by 4.9% in the month.
Month-on-month, industrial output expanded 4.4% in February on a calendar and seasonally adjusted basis, the TurkStat said.
A Reuters poll last week had forecast industrial production to expand 9.2%, with forecasts ranging between 4.8% and 11.4%.
Year-on-year growth has remained positive since coronavirus measures were eased in 2020.
On a monthly basis, the index shrank 2.4% in January due to electricity and natural gas cuts at industrial facilities stemming from a technical failure in Iran.
"It is observed that the decrease in January due to energy cuts was compensated in February, and the seasonal production increase realized at a strong momentum," said Enver Erkan, a chief economist at Tera Yatırım.
"In the coming period, we will monitor the balances created by the Russian crisis in terms of production speed and costs of the industry," Erkan said in a note.
Economists expect the pace of growth in the industrial production index to slow in the coming months and approach a neutral level around summer.
A potential drop in external demand or a supply chain disruption due to Russia’s invasion of Ukraine could also impact industrial production after February.
In April of 2020, output dropped more than 30% in the face of the initial coronavirus wave. It has since made a strong recovery because subsequent measures largely skirted the manufacturing sector, and most remaining restrictions were lifted in July of last year.
Turkey’s gross domestic product (GDP) expanded by 11% last year, its highest rate in a decade, as the economy bounced back from the fallout of the outbreak.
Yet inflation surged amid volatility in the exchange rates and depreciation of the Turkish lira, which sent consumer prices soaring via imports.
Turkey’s annual consumer inflation leaped to 61.14% in March, fueled by rising energy and commodity prices and the fallout of the Russia-Ukraine conflict.
The inflation as well as the fallout from Russia’s invasion of Ukraine, are posing a risk for the growth in 2022.
Erkan said the domestic production activity remained strong as of the second month of the year, and the positive effect of exports, with the positive contribution of foreign demand, was also at the forefront.
Yet, he said sectoral activities may be affected by the high input costs and inflation in the coming period, which could lead to a partial slowdown.
"There are downside risks to domestic demand in terms of domestic orders and production trends, and to foreign demand in terms of export orders. While the increase in commodity prices increases the input costs of the industry, the deterioration in the supply chains may also have the effect of reducing the volume of intermediate goods," Erkan added.
"At this point, we will monitor the price and supply effects stemming from the sanctions imposed on Russia."