Low demand hits industrial output in Turkey

Turkish industrial production declined in February by the most since records began in 1986, as export markets dried up and domestic demand fell.

Industrial output fell 23.7 percent from the same month last year, after declining 21.3 percent in January, the Ankara-based Turkish Statistical Institute, or TÜİK, said on its Web site yesterday. Output was expected to decrease 21.1 percent, according to the median estimate of eight economists polled by Bloomberg. A similar poll by Reuters foresaw a 21 percent drop.

Gross domestic product fell 6.2 percent in the last quarter of 2008, the first contraction in the European Union membership candidate in seven years. Output is shrinking as the global crisis hits demand at home and in Turkey’s main export market in Europe.

Nothing but a disaster

"The first quarter is lost, the picture looks pretty disastrous," Bloomberg quoted Haluk Bürümcekçi, chief economist at Fortis Bank in Istanbul, as saying. Bürümcekçi expects GDP to fall 10.8 percent in the first three months of the year. "There are some signs of a pick-up in automotive sales in March but they are probably selling stock so it’s not clear if that will help output."

"There has been a worsening in the figures somewhat," Reuters quoted Ata Invest Chief Economist Nurhan Toguç. "We take the view that at this level we have reached the bottom, given the effects of the tax cuts."

Manufacturing plummeted 25.9 percent in February, TÜİK said. Mining production fell 16.8 percent and utilities declined 9.7 percent.

Output in Turkey’s car-making industry slumped 58.7 percent compared with the same month a year ago. Companies such as Ford Otomotiv Sanayi, the local unit of Ford Motor, have suspended production as demand dries up at home and abroad. The government March 16 announced a three-month tax reduction on new car sales in a bid to stimulate domestic demand. The Central Bank has cut its benchmark interest rate by 6.25 percentage points in the past five months, taking it to a record low of 10.5 percent. The Bank meets to decide rates on April 16.

Heavy pressure

The increasing pace of the slowdown adds to pressure on the Bank to continue rate cuts. "This result supports the case for another 50 basis point cut by the Central Bank in this month's monetary policy committee meeting," JP Morgan economist Yarkın Cebeci told Reuters. "We expect a similar output performance in March. However, we expect some recovery starting in April as the recently introduced tax cuts have led to inventory depletion in some of the key industries such as the automotive."

Turkish bonds yesterday surged to a 4 1/2-year high on speculation the Central Bank will continue slashing rates. "Its anticipated there will be a serious contraction in the economy and this means the Central Bank will continue cutting interest rates," said Selim Gülkan, a trader at Turkish Economy Bank in Istanbul.

Markets shrugs off bleak data

The Istanbul Stock Exchange, or IMKB, shrugged off the pessimistic data from the corporate sector, as the benchmark IMKB-100 index gained 1,275 points, or 4.84 percent yesterday. The rise was fueled by banking stocks. Analysts said the buying frenzy is linked with the expectations that a stand-by deal with the International Monetary Fund will be signed soon. The IMKB-100 rose 16.7 percent since March 1.

Meanwhile, the U.S. dollar was trading at around 1.59 Turkish Liras at 5:17 p.m. yesterday, having lost 1.9 percent against the lira since April 1.