Turkish Factory Output Slump Shows Growth Woes Are Far From Over

(Bloomberg) --

Turkish industrial output slumped for a 10th month running as the Middle East’s largest economy struggled to gain momentum after its first recession in a decade.

Industrial production adjusted for variations in working days dropped an annual 3.9% in June, extending the longest streak of declines since the global financial crisis in 2009. On a monthly basis, the gauge dipped 3.7%.

The protracted slump comes after a currency crash last year forced the central bank to raise interest rates by more than 11 percentage points, hampering activity. While the lira has since stabilized, and the policy maker has started loosening policy, consumer confidence remains at an all-time low and loan growth is tepid.

“Leading indicators suggest that the scale of the fall in output was probably a blip, rather than the start of a deeper downturn,” said William Jackson, the chief emerging markets economist at Capital Economics in London. “But it serves as a reminder that Turkey’s recovery from the recent recession will be slow and bumpy.”

Last month, Treasury and Finance Minister Berat Albayrak said he expects Turkey to post a positive rate of growth for the year. The median estimate in a Bloomberg survey of economists, however, sees the economy shrinking 1.5% in 2019, the first annual contraction since 2009.

The central bank slashed borrowing costs by a record 425 basis points in July and investors are gearing up for more interest-rate cuts as policy makers attempt to resuscitate the economy. After three consecutive quarterly contractions, gross-domestic product expanded 1.3% in the first quarter.

Here’s a breakdown on how the economy fared in the second quarter:

• Local-currency loan growth contracted an annual 0.1%, according to data from the banking regulator
• Consumer confidence in May dropped to the lowest level since records began in 2004
• Turkey’s unemployment rate, adjusted for seasonal variances, rose to 14% in May, the highest since at least 2005
• The lira slumped almost 4% against the dollar in the quarter, making it the worst performing emerging-market currency; it has led an advance among peers since the end of June

To contact the reporter on this story: Cagan Koc in Istanbul at ckoc2@bloomberg.net

To contact the editors responsible for this story: Onur Ant at oant@bloomberg.net, ;Lin Noueihed at lnoueihed@bloomberg.net, Constantine Courcoulas, Taylan Bilgic

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