Turkish industrial output drops in April

ANKARA (AA) - Turkey's calendar-adjusted industrial production fell 1.1 percent in April, compared to the previous month, the Turkish Statistical Institute (TurkStat) said in a statement Wednesday.

The mining and quarrying index declined 5 percent, and the manufacturing index dropped 1.3 percent for the same period.

But the electricity, gas, steam and air conditioning supply output increased 1.8 percent in April 2016, in contrast to the prevailing trend.

The producers of capital goods saw the largest decrease of 3.7 percent, according to the Main Industrial Groupings.

However, the total calendar-adjusted industrial turnover index, the correction for calendar variations including working day adjustments, grew by 0.7 percent in April compared with the same month last year, according to the data.

The decline surprised analysts who had forecast a rise in output.

Leading economists participating in the Anadolu Agency Industrial Output survey had anticipated a 3.3 percent increase in April on average.

"April industrial output did not give healthy signs for GDP growth, considering the probable strong growth of the first quarter was mainly affected by the high industrial production growth, at the same period," KapitalFx analyst Enver Erkan said.

"We see that, the industrial production index is very volatile; thus monthly adjusted change is positive in the first two months of 2016, then negative," Erkan said. "We will probably see a strong monthly change in May industrial production."

"Being its biggest export market, Turkey has a high exposure to Euro area developments especially to Germany,” economist Bora Tamer Yilmaz at Ziraat Securities told AA.

"So far, indicators point to a slowdown in German manufacturing activity in the second quarter. Factory orders have fallen by 2 percent in April by far worse than the 0.5 percent market estimate. Consequently, Turkish industrial production have fallen by 1.1 percent in the corresponding month," Yilmaz added.

According to Yilmaz, industrial production series have a standard deviation of 1.8 percent from a statistical perspective."Therefore a 1.1 percent decline can be considered normal as it may correct itself in the coming months," he said.

Yılmaz warned that Turkey may need to accelerate domestic demand and work harder to diversify export markets in order to offset the weakness stemming from Germany.

Turkey's industrial output is focal point of interest as Gross Domestic Products (GDP) growth of country stood at 4 percent last year.

The Turkish government aims to reach 4.5 percent of GDP growth and reduce consumer price inflation to 7.6 percent in 2016, according to the government's national economic plan for development.

However, the World Bank expected growth to slow to 3.5 percent in 2016 because of a more negative contribution from net exports compared to 2015, according to the April edition of the the bank's Turkey Regular Economic Brief.

Government officials have repeatedly criticized the Turkish Central Bank's relatively tight monetary policy, claiming it was limiting growth.

Turkey’s central bank cut a key interest rate in March.

On May 24, the bank cut the overnight lending rate to 9.5 percent from 10 percent, while keeping its benchmark one-week repo rate steady at 7.5 percent and its overnight borrowing rate at 7.25 percent.

Economists forecast that the bank will cut a key interest rate for a fourth consecutive time in its June meeting.