Turkey's industrial output displays sharp drop

Hurriyet Daily News with wires

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The drop in production compares with a revised 17.8 percent in December, the Turkish Statistical Institute, or TÜİK, said on its Web site yesterday. Output was expected to decline 19 percent, according to the median estimate of nine economists polled by Bloomberg.

Economists said weak industrial production data will have major implications for the economy, including supporting the Central Bank's policy of monetary easing and stepping up pressure on the government to agree to an IMF deal after months of talks.

"People were expecting another bad number but this is much worse than what the markets expected... risks are definitely on the downside for our forecast of a 2.2 percent contraction in gross domestic product in 2009," Levent Durusoy, an economist at Yatırım Finansman, told Reuters.

Manufacturing industry output, including dynamo sectors such as textiles and automotive, fell 24.2 percent, the Ankara-based statistics agency said. Water, gas and electricity output fell 6 percent, while the country's smaller mining sector's output fell 3.8 percent on the year.

"The serious contraction in the industrial production shows that the wheels of the industry have stopped," Fatih Keresteci, HSBC strategist, said.

The fall comes as the global credit crisis cuts demand in Europe for Turkish-made products such as cars and washing machines.

Unemployment hit a four-year high of 12.3 percent in November and the Central Bank has cut the benchmark interest rate by 5.25 percentage points in four months to stave off recession.

"In previous crises there’s always been an export market that would give some protection to companies; now there’s no one to sell to," said Cem Eroğlu, economist at Vakıfbank, a state-run lender based in Ankara. "We still haven’t seen the impact of the rate cuts on real economic activity and it’s likely unemployment will hit 14 percent soon."

Exports fell 26 percent in January from a year earlier to $7.9 billion, TÜİK said on Feb. 27. Industrial production had dropped by 17.6 percent year-on-year in December, and by 0.9 percent overall in 2008 versus 6.9 percent growth in the previous year.

Constant deterioration in key economic indicators such as exports, unemployment, economic growth has increased pressure on the government to take new steps to reinforce the economy against the global economic crisis.

"It will most probably intensify the pressures on the government to agree with the IMF on a new standby program. The media will most probably be harshly criticizing the government's inaction against the global crisis," JP Morgan Chase analyst Yarkın Cebeci said.

"The public spending's contribution to the gross domestic product will be critical as no other contribution comes from elsewhere" said Ayşe Çolak of Tera Stock Brokers.