Turkey August PMI: Manufacturing industry accelerated its contraction, inflation pressure remains strong

In August, the Istanbul Chamber of Industry (ISO) Manufacturing PMI was reported at a level of 49.0, falling below the threshold value of 50 for the second consecutive month. The reason for remaining below the threshold was largely attributed to weakness in new orders, primarily due to inflationary pressures.

As a result of the difficulties faced by companies in securing new orders, the Turkish manufacturing sector showed a slowing performance in August. Consequently, while there was a modest increase in employment, production and purchasing activities were reduced.

Firms reportedly struggled to secure new orders over the course of the month, seeing new business moderate again, and to a greater extent than in the previous survey period.

A key factor deterring customers from committing to new orders was strong price pressures. Input costs increased sharply, and at a pace that was only slightly softer than the 16-month high posted in July.

Weakness of the Turkish lira against the US dollar and rising wages were the main factors leading to higher input costs.

In turn, the rate of output price inflation also remained elevated as around 30% of respondents increased their charges over the month.

The aforementioned slowdown in new orders led manufacturers to scale back their production in August, the second consecutive month in which that has been the case. Although only slight, the latest moderation was more pronounced than that seen in July.

Purchasing activity eased, while softer new order inflows also led firms to deplete their inventories of both purchases and finished goods.

On a more positive note, employment increased for the fourth successive month as some firms continued to report the need for additional workers.

That said, the rate of job creation was only fractional and the softest in the current growth sequence.

Economics Director at S&P Global Market Intelligence said: “It was a familiar story for the Turkish manufacturing sector in August, with price pressures acting to restrict demand and leading to a general moderation of business conditions. Inflationary pressures did moderate somewhat in the latest survey period, but they remained elevated. The main positive element
in the latest report was that firms continued to hire additional staff, although the rate of job creation was only fractional so it remains to be seen if this growth will continue should demand conditions remain subdued.”