Capacity usage hits rock bottom in Turkey

Hurriyet Daily News with wires

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Turkey began 2009 with disappointing economic figures. First the decline in December's industrial output, and now capacity utilization has hit rock bottom

Turkish manufacturers’ capacity utilization fell to the lowest in at least nine years in January, as the global crisis decreased demand and drove many companies to halt output.

Manufacturers were using 63.8 percent of their capacity, compared to 64.7 percent a month earlier, according to the Turkish Statistical Institute, or TÜİK, in Ankara’s Web site. Capacity use was expected to fall to 62.1 percent, according to the median estimate of six economists in a Bloomberg survey.

Carmakers including Tofaş, Fiat’s Turkish unit, halted production in January as orders from Turkey and the European Union slumped. Industrial output fell 17.6 percent in December, the biggest decline since records began in 1986.

"These figures are not unexpected to me," said economist Mustafa Sönmez. "The impact of the global financial crisis on Turkey was, of course, going to be felt in the industry, ,nstaed of the finance sector," Sönmez told the Hürriyet Daily News&Economic Review.

Acting as suppliers for industry
"Until the global crisis, the main duty of the developing countries was to be the industry suppliers of the developed economies. Since the demand shraply dropped in developed countries due to their financial crisis, that has translated into an industrial crisis in developing economies including Turkey," said Sönmez. Deteriorating domestic demand did not help the situation much either, he added.

The capacity utilization rate is expected to drop further in the coming months, said Sönmez. "The decline in the industrial capacity utilization would cause an increase in unemployment."

"The industry struggling to overcome the crisis could eventually contaminate Turkey’s ’strong’ finance system, as companies would begin to fail paying off their debts," he said. "There is no room to be relaxed because the actual fire is in industry," added Sönmez.

Seeking to avert recession, the Central Bank cut its benchmark interest rate by a total of 3.75 percentage points in the last three months, taking it to a record low of 13 percent in January. The Bank will meet on Feb.19 to plan rates.

Half of the companies surveyed by the Turkish Statistical Institute in Ankara said weak domestic demand was the reason for not operating at full capacity. Another 29 percent blamed lack of demand in export markets.

The same day TÜİK revealed the somber news of declining capacity utilization, the Treasury said the national budget posted a deficit of 1.9 billion Turkish Liras in January. The budget surplus before interest payments in January was 1.9 billion liras ($1.2 billion), Bloomberg cited preliminary figures released by the treasury.

The ex-interest deficit narrowed from a surplus of 5.1 billion liras in January 2008. The overall budget, including interest payments on debt, posted a deficit of 1.9 billion liras in the month, compared with a surplus of 1.2 billion liras a year ago, the Treasury said.

Meanwhile, estimates for 2009 growth dropped to zero from 0.4 percent two weeks earlier, the Central Bank said Monday, according to its survey of businessmen and economists. Estimates of inflation in 12 months fell to 7.16 percent from 7.46 percent.

"The Treasury data is not ... encouraging, suggestive of pressure on the revenue side from lower gross domestic product and inflation, while spending remains bloated," Timothy Ash of the Royal Bank of Scotland said in a note to investors Monday. "If these trends continue to year-end ... Turkey would be running a deficit of close to 70 billion liras compared to 16.3 billion for the full year in 2008, and even the primary balance would be running in a deficit of around 20 billion," he said.

Pressure rising, says FT

The government "risks losing credibility with investors and missing the best chance in years to tame endemically high inflation and borrowing costs" if it backs away from a deal with the International Monetary Fund, Financial Times wrote yesterday, citing analysts.

If a deal is reached, Turkey might secure "at least $20 billion in IMF funding," the newspaper said, adding that many now wonder if prime minister Recep Tayyip Erdoğan will "commit to a deal requiring unpopular fiscal tightening."

Speaking to the Financial Times, Ahmet Akarlı, an economist at Goldman Sachs, said "the government’s credit is running out" on the issue. The IMF "wants a tougher fiscal rule and controls on municipality spending to restore the budget balance," while Erdoğan is "understandably reluctant to announce such a depressing growth outlook and difficult remedy just before local elections" in March 29, the paper said.