Inflationary Pressures Remain Strong, Linked To The Weak Lira"

Turkish manufacturing sector output fell for the fifth successive month in May, as inflationary pressures remained strong, linked to the weak lira, according to the latest PMI® survey data, released by Markit on Monday.

"The headline figure rose for the second month running from March's 71-month low but, at 50.2, signalled only a fractional rate of improvement" said in the statement on HSBC Turkey Manufacturing PMI data.

Only two of the PMI's five components – employment and suppliers' delivery times – registered positive contributions, while the three remaining components all signalled marginal declines. The PMI remained below its long-run average of 50.9 in the latest period.

"Output fell for the fifth successive month, but the rate of contraction slowed to a marginal pace. The same trends were evident for new orders and new export business" said in the statement.

On the other hand, employment growth had been maintained, albeit at a modest pace, while firms increased their purchasing activity, it said. "Inflationary pressures remained strong, linked to the weak lira, with average input prices rising at the second-fastest rate in 14 months, while output charges increased at the strongest pace since March 2014."

Any figure greater than 50.0 indicates overall improvement of the sector. The PMI registered above the no-change mark of 50.0 in May, signalling an overall improvement in manufacturing business conditions. That followed a four-month sequence of contraction.

Trevor Balchin, Senior Economist at Markit, said, May's survey of Turkish manufacturers had signaled a broad stabilization in business conditions and the rise in the PMI above 50.0 and further job creation were the main positive findings, while new orders and output fell at the slowest rates in 2015 so far.

"Inflationary pressures remained strong, however, linked to the weak lira. The most recent official data also show improvements, with business confidence reaching the highest since mid-2014 in May, and IP growing in March" he added.

Turkish goods producers cut output in May, continuing the trend shown every month in 2015 so far, the statement said, as the rate of decline slowed to the weakest in this sequence, and was only fractional. "Backlogs of work declined for the sixth successive month, but at the slowest pace since last December."

The main contributing factor to declining output in May was a further drop in new business, and new orders fell for the fifth month running, albeit at the slowest rate over this period, with the same trend evident for new export orders.

"Firms reported weak underlying market conditions and uncertainty linked to upcoming elections" the statement said. "Manufacturers in Turkey raised employment for the second month running in May, despite the ongoing downturn in new work. That said, the rate of job creation was modest, and slower than the average over the past six years."

The strong dollar had continued to be reported as a factor driving up manufacturing input prices in May, the rate of inflation eased since April, but was still the second strongest in over a year, meanwhile, output price inflation hit a 14-month record. - Istanbul