Turkey’s January manufacturing PMI surprises to upside but suggests “nasty” inflation reading ahead

Analysts were surprised to the upside by the reading of the Turkey manufacturing purchasing managers’ index (PMI) for January released on February 1.

The index rose from 47.4 in December to a four-month high of 49.2 in January, still in contraction territory as only readings above 50.0 denote expansion, but nevertheless a somewhat unexpected improvement.

Liam Peach at Capital Economics said in a market note: “Encouragingly, the new export orders component jumped to its highest level since June, which is positive for Turkey’s ongoing rebalancing process.

“Of particular concern, though, was the huge leap in the input prices component from 58.8 in December to 71.2. The survey pinned this largely on the increase in the minimum wage (of around 49%) and suggests that we should brace for a nasty January CPI [consumer price index] figure (to be released on 5th February).”

PMI survey compiler S&P Global said that although business conditions in the Turkish manufacturing sector remained challenging at the start of 2024, rates of moderation in output, new orders and purchasing activity all eased since December.

Andrew Harker, economics director at S&P Global Market Intelligence, said: “There were some positive signs in the latest PMI figures for Türkiye, with rates of moderation generally easing. The historical relationship between the PMI data and official industrial production data suggests a solid start to the year.

“Manufacturers did face some headwinds, however. A rapid acceleration in cost inflation fed through to much higher output prices, acting to limit demand. Meanwhile, the shipping issues in the Red Sea caused disruption to supply chains, which had shown an improvement at the end of 2023.”

S&P noted that despite the better outcome posted for January, the health of Turkey’s manufacturing sector had now eased in seven consecutive months.

“According to respondents, demand remained fragile but showed some signs of improvement in January,” it said.

S&P added: “The ongoing fragility of demand was highlighted by a further easing of new business, extending the current sequence of moderation to seven months.  New export orders also softened, albeit only slightly.

“Firms scaled back purchasing activity and inventory holdings in response to weaker new orders, but they kept staffing levels unchanged following a fractional increase in December.”

The rate of input cost inflation accelerated sharply in January to the fastest rate seen since last August, said S&P.

“An increase in the minimum wage was widely mentioned by panellists, while higher raw material costs and currency weakness also reportedly added to price pressures,” it also observed.