September Industrial Production: Stating GDP Contraction


September industrial production index was down -4.2% y/y well below the market consensus of 2.5% y/y, driving the 3-month moving average to the negative territory for the first time since the global financial crisis. Following the results analysts downgraded their 2016 GDP growth estimate to the 2.3%-2.5% from the recent 3%-3.5% as an output contraction is very likely in 3Q 2016. The Ramadan holiday negatively affected the data, however, we also saw a decline in seasonally and working-day adjusted data (-2.5% y/y, -1.5% 3MMA).

turkey-real-gdp-growth-v-industrial-production-indexAll of the main production groups have contracted in 3Q 2016. It goes with saying, manufacturing sub-index has a strong relationship with industry’s output showed a decline which account for one third of the economy. There is an off-chance that faster than expected output growth in agriculture would minimize the contraction.

turkey-manufacturing-output-growth-v-manufacturing-indexDomestic demand should also be expected to be weak.

turkey-real-domestic-consumption-v-consumer-related-industrial-productionWe expect Turkey’s real GDP to contract by %0.8 in 3Q. For 4Q 2016, some pre-indicators including loan growth, PMI, auto sales point to a strengthening but we are in early days yet.