Turkey's Manufacturing PMI Rises in October but Remains Below Threshold, Signaling Continued Deterioration in Economic Conditions

Forex - The Istanbul Chamber of Commerce (ISO) has released the results of the Turkey Manufacturing PMI (Purchasing Managers' Index) survey for October 2024, which is regarded as the fastest and most reliable reference for manufacturing performance, a leading indicator of economic growth. According to the survey results, which indicate that all figures measured above the threshold value of 50.0 signal improvement in the sector, the headline PMI rose from 44.3 in September to 45.8 in October; however, it remained below the threshold value of 50.0, continuing to signal deterioration in business conditions.

The sector's performance has been on a downward trend since April. The ongoing challenging market conditions have led to weak demand and a continued slowdown in total new orders and exports. Consequently, manufacturers reduced production for the seventh consecutive month. However, the declines in all these indicators have eased slightly compared to September. The stagnation in new orders has also led to a decline in employment and purchasing activities. Nonetheless, some firms reported that voluntary resignations were the cause of the decrease in their workforce. Meanwhile, input inventories experienced the most substantial drop since May 2020.

Inflationary pressures continued to ease at the beginning of the final quarter of the year. Input costs increased significantly, but this increase occurred at the slowest rate in about a year and a half. A decrease in final product price inflation was also recorded. The weakness of the Turkish Lira continued to be a significant reason for the cost increase. Survey participants reported price increases for some raw materials, such as wheat, as well as transportation costs.

Finally, after supplier performance recorded its first improvement in the past nine months in September, input delivery times increased again in October. However, the data indicated that the extension of delivery times occurred at a relatively moderate level.

Andrew Harker, Director of Economics at S&P Global Market Intelligence, commented on the Istanbul Chamber of Commerce Turkey Manufacturing PMI survey data, stating: "Although the weakness in many key sub-indices like production, new orders, and employment eased in October, recent data showed that challenging demand conditions continue to pressure the Turkish manufacturing sector. It is noteworthy that firms have reduced input inventories at the highest rate seen in about four and a half years. A relatively positive outcome of the survey was the continued reduction in inflationary pressures, thereby lessening the impact of this specific obstacle to growth at least."

Production decreased in all sectors except food products According to the Istanbul Chamber of Commerce Turkey Sectoral PMI October report, production decreased in nine of the ten sectors tracked, with food products being the only exception. The sharpest slowdown in production was recorded in the wood and paper products sector. The contraction in this sector was the highest since the first wave of the COVID-19 pandemic in 2020. Similarly, food products were the only sector to report an increase in new orders, while the most significant decline was observed in clothing and leather products.

After three sectors recorded increases in September, relatively positive signals in new export orders displayed growth only in food products in October. The electrical and electronic products, as well as land and sea vehicle sectors, experienced a renewed slowdown in exports. Due to the easing workload, manufacturers generally opted to reduce their workforce as they entered the fourth quarter. Only the food products and chemical, plastic, and rubber sectors increased their employment, while the sharpest decrease was recorded in the textile sector. The land and sea vehicle sector saw the steepest decline in employment since the inception of the survey. In October, while increases in input costs lost momentum in six of the ten sectors tracked, they remained at high levels. The fastest rise in input prices was witnessed in the food products sector, while the slowest increase occurred in the chemical, plastic, and rubber sector. In the non-metallic mineral products sector, efforts to stimulate demand led to a decline in final product prices for the first time in about four and a half years. In other sectors, moderate increases in selling prices were generally observed. However, some sectors, especially food products, which recorded the highest inflation in the last six months, continued to significantly raise their final product prices. Lastly, in October, supplier delivery times shortened in only three of the ten tracked sectors, down from six in September.