TURKEY: Industrial production collapsed in February, but expectations of a recovery dominate
sanayi-uretim
The Industrial Production Index (IPI) fell by 1.6% month-on-month and 5.2% year-on-year in February, adjusted for seasonal and calendar effects. When excluding the calendar effect caused by having one less working day compared to February of last year, the annual decline was more limited at 1.9%.
On a cumulative basis, the seasonally adjusted IPI contracted by 4.2% in January and February combined. This contraction is considered a correction following the strong increases seen in November and December (cumulative: 8.4%) driven by volatile components. Still, when we look at the cumulative change over the last four months — where these volatility effects are absent — the IPI posted a strong increase of 3.9% (monthly average ≈1.0%), confirming the underlying trend of recovery. On a quarterly basis, the index grew by 0.9%.
We gathered opinions from three financial institutions about the outlook for the coming months. There is no consensus on the IPI’s trajectory.
Akbank Analysis
[embed]https://www.youtube.com/watch?v=eJAuVgWL4bk&t=157s[/embed]The IPI declined in February following a drop in January. However, we consider this decline to be a correction of the sharp increases in November and December caused by historically volatile components. The 3.9% cumulative increase over the past four months, unaffected by volatility, indicates a strong trend and signals that a recovery followed the slowdown in the second and third quarters of 2024.
Sectoral data suggests this recovery is broad-based, with capital goods showing the strongest performance. Survey indicators show that domestic demand played a significant role in this rebound. In the first quarter, strong credit expansion and continued loose fiscal stance supported domestic demand.
However, domestic developments, coupled with tariff-driven global volatility and tightening financial conditions, pose downside risks to industrial production in the second quarter from both domestic and external demand.
Alnus Investment Assessment
The 1.6% decline in industrial production in February 2025 reflects the correction of rapid increases in certain sectors in December 2024. For example, in sectors such as automotive, there was front-loaded purchasing to avoid impending taxes and fee hikes. Due to these pre-emptive purchases, industrial production surged in December (a 5.0% increase, with an extreme 51.6% spike in High-Tech), but declined again in January and February as demand faded in these sectors.
Additionally, the 4.16% increase in PPI (Producer Price Index) for Mining and Quarrying in February may have put pressure on that sector. Contractions in Capital Goods and Intermediate Goods sectors directly highlight weaknesses in industrial activity. Furthermore, monthly (1.88%) and yearly (1.57%) declines in February exports also point to weakened industrial demand.
As for March data, despite mid-month domestic volatility, the monthly 12.64% and yearly 3.25% increase in exports suggests that industrial production may return to positive territory in March.
Looking ahead, we expect that interest rate cuts from the Central Bank and a potential easing of macroprudential measures will be supportive. However, Donald Trump’s recent tariff-driven trade policies, following his return to the US Presidency on January 20, have increased global trade uncertainty. Therefore, the condition of Turkey’s major export markets will be closely monitored throughout 2025 to assess the sustainability of the recovery. Additionally, geopolitical risks will also be critical. As such, a full recovery in industrial production will require not only domestic success in disinflation, but also a significant reduction in external uncertainties.
Marbaş Securities Assessment
Although the results were moderate and in line with our expectations, we expect them to have a neutral impact on markets, but a negative impact on financials. Unless PMI and other indicators show signs of recovery, job losses will likely continue, and due to the clearing of accumulated orders, we anticipate a period of moderate or weak results until the second half of the year.
