Industrial sector lost momentum in August 2020

Source: Turkstat

Falling exports was the main factor behind weakening industrial sector

According to calendar and seasonally adjusted Turkstat data, industrial production rose 3.4% m/m in August following 8.48% rise in July. The main factor behind weakening is a 4.63% decline in durable consumer goods production in the same period.

Besides, declining exports by 17% in August also explains momentum lost in industrial production. According to the TİM figures, industrial goods exports fell by 18% in August. In detail, Vehicles and Sub-Industry exports and Iron and Steel exports fell by 30% and 16% in August, respectively. Moreover, declining in leading exports sectors of textile and chemicals suggests deterioration in nondurables production.

Retail sales partly supported the industrial production in August

According to calendar and seasonally adjusted Turkstat figures, retail sales increased by 1.4% m/m in August. Food and automotive fuel excluded sales rose by 4.5% while food, beverage, and tobacco sales shrank by 3.7% in the same month. Furthermore, textile, clothing and footwear sales soared by 12.7% thanks to the discount season. On the other hand, electrical goods, and furniture sales narrowed by 4.8% in August stemming from jumping consumer loan rates from 13% to 17% levels.

Source: Turkstat

Industrial production may perform better in September

Calendar and seasonally adjusted SAMEKS Industrial Sector Index weakened slightly in September, and a similar weakness was also seen in ISO manufacturing sector PMI figures. TİM exports figures, on the other hand, pointed to a 30.5% increase in September. Considering the figures mentioned above, we may say that industrial production may perform better in September compared to the August figures.

Industrial sector will support the employment in August, but the outlook is unfavorable for September

According to seasonally adjusted labor force statistics, unemployment rate realized as 13.6% in the period of July 2020 down by 0.5 percentage point the previous period.

Source: Turkstat

Considering both retail sales and SAMEKS Services Index in August, employment in the services sector does not point out any favorable outlook, while this is not the case for the September figures.

On the other hand, SAMEKS Industrial Sector figures indicate speeding in recruitment in August signaling improvement in employment outlook in the sector. However, September SAMEKS figures points to a discouraging employment outlook.

Fulya Gürbüz, Ph.D.

Manufacturing sector expanded in easing-COVID-19-restriction countries while contracted in second-wave-affected countries in September

IHS Markit announced September 2020 global manufacturing sector PMI (purchasing managers index) data. The value of 50 indicates no change in the sector compared to the previous month while values above 50 show expansion and values below 50 show contraction in the sector.

Turkey’s manufacturing sector maintained to remain in growth territory in September

In September, we had received the improvement signals in the manufacturing sector with the Real Sector Confidence Index published by the Central Bank and SAMEKS Industrial Sector PMI Index published by MUSIAD.

According to IHS Markit manufacturing sector PMI data prepared in cooperation with ISO, in September 2020;

. The employment growth accelerated as a reflection of the rise in new orders, the sharpest rise in employment was recorded since February 2018,

. Output continued to increase but the pace of growth was weakened,

. Inflation pressures strengthened because of the depreciation of the Turkish lira, the pace of input costs peaked to the levels of October 2018, and output prices recorded the highest rise in last two years,

. Notices from enterprises regarding depreciation of Turkish lira supporting competitiveness in exports markets were amongst relatively positive findings in the survey,

. As a reflection of rises in new orders and production requirements, purchasing activities have been increasing for the last four months.

The improvements in the manufacturing sector in the third quarter of 2020 compared to the previous quarters strengthened expectations of a growth in both industrial production and GDP.  

image.png

The growth trend in Eurozone manufacturing sector continued in September

IHS Markit announced flash September Eurozone manufacturing PMI figures on September 23rd. Unlike the previous report, a new finding worth mentioning in the latest report is that the main trigger of the growth in Germany’s manufacturing sector was the increase in exports orders from China, Europe, and Turkey.

While PMI figures of Greece and Ireland recorded 50 in September, Germany’s PMI figure recorded the sharpest increase with the value of 56.4.  Italy with 53.2, Netherland with 52.5, Austria with 51.7, France with 51.2, and Spain with 50.8 pursued Germany.

In general, the decrease in the employment of the Eurozone manufacturing sector weakened.

The changes in input costs varied across the Eurozone. Output prices have been falling for the past fifteen months due to the fierce competition and fragile demand conditions.

The United Kingdom manufacturing sector expanded in September with the PMI figure of 54.1. New export orders increased due to the demand rise from Europe, Asia, and North America. Both input costs and output prices increased in September.

In Asia and Far East, manufacturing sector expanded in easing Covid-19 measures countries while contracted in countries affected by second wave in pandemic

The improvement of the manufacturing sector was triggered by China which succeeded to control the pandemic.  Employment grew the first time in 2020. Purchasing activities and inventories increased. The rise in input costs continued but the pace weakened in output prices.

Due to the second wave in Covid-19 in some countries, manufacturing sectors contracted, purchasing activities fell, and delivery times extended (Indonesia, Myanmar, Russia).

Input costs continued to increase (Japan, Kazakhstan, Malaysia, Russia). 

In some countries, the manufacturers continued to offer price reductions to their customers (Japan, Myanmar, Thailand)

Layoffs continued (India, Indonesia, Malaysia, Myanmar, Philippines, Russia, Thailand, Vietnam).

Due to the easing in pandemic measures in Russia, output rose but domestic demand remained stagnant while foreign demand fell. Purchasing activities decreased, layoffs speeded, delivery times extended. Because of raw material shortage and price rises from suppliers, the input costs and output prices rose. 

In Kazakhstan, new orders, output, purchasing activities and employment increased with the help of easing in pandemic measures in the country. The rise in input costs was reflected in output prices.

Similarly, in India, both domestic and foreign demand expanded with the help of easing in pandemic measures in the country. Manufacturing sector PMI increased to 56.8 in September. Selling and purchasing activities speeded. Input costs increased due to rise in both aluminum and steel, and thus output prices rose. The downward trend in employment continued to maintain social distance.

In the Philippines, the decrease in output eased down due to the rise in new orders. Although the rise in input costs continued, manufacturers partly increased the output prices due to the improvement in demand. The decrease in employment increased.

In Thailand, the output continued to grow with the support of improvement in domestic demand.

In Vietnam, output, new orders, purchasing activities increased, and layoffs decreased. The exports demand increased for the first time since January 2020. Input costs increased because of raw material shortages, and delivery times extended. The output prices increased for the first time for the last eight months. 

Japan could stabilize weaker demand from Europe and the USA with the support of export demand from China and South-East Asia countries. There was no change in employment in September.  

In the American continent, manufacturing sectors in the US, Canada, Brazil, and Colombia expanded in September, contracted in Mexico

In American continent, the highest expansion in the manufacturing sector was recorded in Brazil with the historical record PMI value of 64.9. Canada with the PMI figure of 56, the US with 53.2, and Colombia with 50.4 pursued Brazil. 

The Mexico manufacturing sector remained in contraction territory with the value of 42.1. 

Demand from the US supported Canada’s manufacturing sector. The US manufacturing sector recorded the strongest improvement since January 2019 while Canada’s performance was strongest since August 2018. 

In summary, J.P.Morgan Global Manufacturing PMI rose to a 25-month high of 52.3 in September, up from 51.8 in August. The output increased at a slower rate compared to the previous month. The growth in new orders speeded with the support of expansion in new export orders. Exports of consumer, intermediate, and investment goods expanded together for the first time since May 2018. Employment declined at a slower rate. On the price front, input prices inflation increased at a faster rate while output prices inflation rose at the same rate with the previous month.

Fulya Gürbüz, Ph.D.

The industrial sector accelerated due to the increase in exports in June

Following a record low levels stemming from pandemic related isolation in April and a moderate improvement in May, we saw a rapid increase in industrial production in June. The reasons behind the improvement in June are purchasing managers indices and exports figures:

According to unadjusted figures, Industrial Sector PMI Index (SAMEKS) increased to 49.7 in May and to 56.7 in June following record low levels of 25.4 in April. Figures lower than 50 level point out contraction compared to the previous month in the sector. According to the calendar and seasonally adjusted figures, the index navigated from 29.7 in April to 44.6 in May and to 51.6 in June. New orders sub-index increased by 9.8 points m/m to 52.8, input purchases sub-index increased by 9.0 points m/m to 57.5, production sub-index increased by 8.5 points m/m to 49.2 and employment sub-index increased by 13.5 points m/m to 58.1 in June.

IHS Markit Turkey Manufacturing PMI index increased to 53.9 in June, from levels of 33.4 in April and 40.9 in May. Like SAMEKS index, levels above 50 in ISO Markit PMI index refer to growth in the sector compared to the previous month. Although new orders increased in June, rate of increase in new export orders fell behind total new orders. Furthermore, both employment purchasing activity increased in June. However, input stocks decreased due to the use of existing stocks in the same period.

The factor that pulled down the SAMEKS and ISO PMI indices was the decrease in delivery times sub-index. This demonstrated that disruptions in the supply chain continue. However, depreciation in Turkish lira in June resulted in rise in both input costs and thus selling prices, and output charges increased at the fastest pace in the last three months.

According to TİM (Turkish Exporters Assembly) export figures of General Trade System increased to 13,469 million dollars in June following 8,993 million dollars in April and 9,964 million dollars in May. You can see the figures of Industrial Sector SAMEKS and TİM export figures for the last 3.5 years.

As can be seen the graph below, while the main export sector was Apparel sector in period of 2000-2006, Motor Vehicles and Spare Parts sector has received the flag since 2006. Automotive sector exports, which fell to $ 596 million in April increased to 1.2 billion in May and to 2,0 billion dollars in June. However, the exports performance in June is below the March figures.

The graph below shows annual average export figures of main exports sectors in period of 2000-2019.

Although export sectors got momentum in June as can be seen the graph below, performance of the sectors are behind the average of 2019 figures as we consider the graph above. Performance of the leading export sector, Motor Vehicles and Spare Parts, is at the levels seen in the period of 2013-2015 yet.

And finaly, we consider the services sector with the help of Services Sector SAMEKS Index and import figures in June. Services Sector SAMEKS Index increased by 0.5 points to 42.4 which means that the contraction in the sector continued in June at a slower pace compared to the previous month. The reason behind the rise is the input purchases sub-index increasing by 3.4 points to 50.1 in June.  Furthermore, according to the Ministry of Commerce foreign trade figures in June, imports of intermediate and investment goods increased in June compared to the previous month. When we consider ISO PMI figures indicating pace of exports orders falling behind total orders, the rise in imports of intermediate and investment goods supports the rise in input purchases for both supplying export orders and input stocks. Excluding increasing gold imports in June, retail sales figures of June due on August will show the other reasons behind the rise in domestic orders.

On the other hand, it is clear that the rising of credit volume which began in the second half of 2019 and continues since the beginning of 2020 will support economic growth in the second quarter of 2020. However, any delay in the growth engine of the services sector activity, which is the engine of the economic growth, and increasing price levels may result in weakening of purchasing power.

Let me bring it to your attention; while the ratio of non-performing loans to total loans is at 4.8% in May, the of ratio of expected loss provisions to total loans is at 5.3% in the same period. Despite the fact that the ratio of non-performing loans to total loans was at 5.7% in December 2019 and the of ratio of expected loss provisions to total loans was at 5.5% in January 2020, and decreased from these levels in May, trend in non-performing loans would not exhibit an optimistic outlook for the banking sector should deterioration of the income distribution continue.income distribution,

Dr. Fulya Gürbüz