Turkey Manufacturing Output Falls for First Time in 4 Months
The seasonally adjusted HSBC Turkey Manufacturing PMI dropped below the 50.0 nochange mark in July, posting 49.4. This followed a reading of 51.4 in June and signalled the first deterioration in business conditions since March.
That said, the decline was only marginal. Both output and new orders decreased in July. New business fell for the fourth month in 2012 so far, following stagnation in June. Those respondents that posted a decline in new business mentioned falling demand.
New export orders rose slightly, following a solid decline in the previous month. A number of panelists reported that weakness in European markets had prevented stronger growth of new export business.
With overall new orders decreasing, firms lowered output during the month. The fall in production was the first since March. Alongside the drop in new business, some respondents also signalled that weak market
conditions had impacted negatively on output.
A decline in new orders led firms to reduce outstanding business in July. Backlogs of work decreased for the seventeenth month running, and at a marked pace that was broadly unchanged from June.
Manufacturers continued to raise employment, but the rate of job creation slowed for the third consecutive month and was only slight. Staffing levels have risen in each month since June 2009. The weaker rate of job creation in part reflected falling demand, according to anecdotal evidence.
Input costs increased further in July, with respondents mentioning higher raw material prices. That said, the rate of inflation remained below the series average. Despite ongoing cost inflation, firms lowered output prices for the first time in 32 months.
Capacity constraints at suppliers led to a further lengthening of delivery times during July, and at the sharpest rate in three months. Higher demand for inputs was also reportedly a factor behind the deterioration in performance.
Purchasing activity increased for the third time in the past four months, with the rate of growth quickening from June. That said, stocks of purchases remained largely unchanged as firms displayed a reluctance to build inventories. Stocks of finished goods meanwhile
decreased marginally for the third successive month.
Firms reported a preference for using stocks to fulfill sales rather than new production.
Melis Metiner, Economist at HSBC, said: “Turkish manufacturing conditions deteriorated in July, falling into contraction territory for the first time since March. Both output and new orders fell, while new export orders recovered after a sharp decline in June.
“The pace of improvement was marginal, however. Inventories decreased for the third month in a row, but the new orders minus inventories ratio still fell from last month’s level. Another forward looking indicator, the employment index, pointed to rising employment, but the pace of job creation slowed for a third consecutive month. In line with the subdued demand outlook, producers reduced their output prices for the first time
since late 2009, even though input costs continued to rise in July.
“It is difficult to gauge Turkey’s export performance for 2H12 as this depends on whether or not demand from the MENA region for Turkish exports will hold up. On domestic demand, the picture is a bit clearer.
Considering the recent rise in both agricultural commodity and energy prices, and their impact on the inflation outlook, there may not be much room for monetary loosening to support domestic demand