Turkey: Sharp drop in industrial production with worse to come

Industrial production contracted by 7.1% month-on-month in March following a relatively healthy performance in the first two months of 2020, as Covid-19 took a toll

-7.1%

IP Growth

In March, MoM

After a relatively healthy performance in the first two months of the year, industrial production (seasonal and calendar adjusted, SA) showed a worse than expected fall in March, by -7.1% MoM. Given the effects of the coronavirus weighing on both the global and domestic economic outlook, and recently released high frequency indicators, we will likely see a stronger contraction in April.

IP vs PMI

Among sectors, automotive, textile and apparel were significant drags on monthly manufacturing production, taking away 1.4ppt each from the total figure. Only four sectors, namely chemical, paper, wood and tobacco products, recorded month-on-month increases, though at relatively small rates, showing the extent of the impact from the pandemic. Despite the start of local lockdown measures, which happened later than in European countries, production declines in major export sectors, with the strongest negative impact on the headline rate, are indicative of evaporating demand in Turkey’s key export markets, the eurozone and Middle East.

Industrial production (calendar-adjusted) growth in March also turned out to be much lower than expected at -2.0% year-on-year (vs 2.8% consensus and our call at 3.5%).

IP vs Electricity Generation

Overall, recent global developments have started to weigh on economic performance, given the sensitivity of the growth outlook to global activity. Recent data points to a much sharper decline in April as electric energy consumption was down by more than -15% YoY in April, after a relatively mild -0.2% drop in March. This points to much weaker industrial output, while the Turkish economy is expected to be in recession again this year.