What’s going on here?
Turkish manufacturing activity contracted for the fifth straight month in August, though a rise in new export orders offers a glimmer of hope.
What does this mean?
Turkey’s Purchasing Managers’ Index (PMI) edged up to 47.8 in August from 47.2 in July, according to a survey by the Istanbul Chamber of Industry and S&P Global. But with a PMI below 50 still signaling contraction, demand issues continue to force manufacturers to cut output, reduce employment, and curb purchasing activities. On a brighter note, new export orders grew for the first time in over a year. Despite this uptick, overall new orders softened due to challenging market conditions. The weak lira drove input costs higher, prompting manufacturers to raise output prices. While Andrew Harker from S&P Global noted the impact of subdued demand on production and employment, he expressed cautious optimism that rising exports might help revive the sector.
Why should I care?
For markets: Currency woes and global conditions.
The Turkish lira’s depreciation has increased raw material costs, pushing manufacturers to hike prices and highlighting ongoing inflation concerns. This currency weakness is a crucial factor for investors looking at Turkish markets. Although rising export orders are a positive sign, the tough global economic environment casts doubt on the sustainability of this recovery.
The bigger picture: Tentative recovery amid tough times.
Turkey’s manufacturing struggles mirror broader economic issues like inflation and weak global demand. While higher export orders are encouraging, they may not offset the pressure from overall demand. This underscores the need for strategic policies to stabilize the currency and boost both domestic and international demand. The long-term recovery will hinge on how well Turkish manufacturers navigate these economic challenges.
