Industrial output falls at worrying pace

Industrial production in Turkey declined at a faster pace in September for the first time in seven months, adding weight to Central Bank doubts over the strength of recovery from the deepest recession in decades.

Output dropped an annual 8.6 percent in September from 6.3 percent in August, the first time the fall had accelerated since February, according to figures the Turkish Statistics Institute, or TurkStat, released on its Web site Monday.

Production, which has fallen for 14 consecutive months, was expected to decrease 7.5 percent, according to the estimates of 16 economists polled by Bloomberg. Production fell 0.2 percent from the previous month.

The Central Bank has slashed 10 percentage points from the benchmark interest rate in a year of cuts and said Oct. 27 that there is room for “limited” additional reductions because there is still no sign of a sustained recovery. The bank will meet to set the overnight borrowing rate Nov. 19.

The data “suggest that recovery is proving slow-moving in Turkey,” Timothy Ash, an emerging-markets economist at the Royal Bank of Scotland, wrote in an e-mail. “There have now been 14 straight months of year-on-year contraction. Month-on-month industrial output fell 0.2 percent, which is doubly disappointing.”

A decline of more than 8.2 percent would point to a “deeper slump and weaker growth in the third and fourth quarters,” Bloomberg quoted Finansbank economist İnan Demir as saying in an e-mailed report before the data were announced. Finansbank does not expect to see a positive result until December, Demir said.

Alarm over manufacturing

In a note to investors, İş Investment economists noted that among the components of the disappointing data, manufacturing output contracted 9.3 percent on an annual basis.

“The contractions in mining and gas/electricity are 6.4 percent and 4.1 percent, respectively, a testimony that the weakness has spread,” a report by İş Investment said. “Falling for the 14th straight month, industrial production has contracted 15.1 percent in the first nine months of the year.”

“Despite the relative strength of durable goods performance, we see no recovery in intermediate goods and perishable goods,” the report noted. “Despite the dynamics seen in automobile and furniture production, weakness continues in ready wear, food and refined petroleum. The overall picture supports our prediction that the recovery will be slow and gradual.”

Turkish gross domestic product may contract 6.5 percent this year, according to International Monetary Fund forecasts. That would be the deepest decline since World War II.

Exports in September fell 34 percent from a year earlier to $8.5 billion, TurkStat said Oct. 30. The global crisis has slashed demand in Europe for Turkish-made goods such as washing machines and ovens.

TurkStat will announce seasonally adjusted output figures for September output on Nov. 26.

Speaking to the private CNBC-e news channel on Monday, Industry Minister Nihat Ergün said industrial output will post “a better performance in October” because exports gained on a yearly basis last month. Investors in Turkey should not get obsessed with “zigzags” in the country’s output data, Ergün said.

İş Investment said that in light of the recent data, the Central Bank might cut the benchmark borrowing rate by 25 basis points, from its current level of 6.75 percent.