Turkey Joins Emerging Market Slump as Manufacturing Contracts

Turkey’s economy is showing signs of slowing, with the weakest manufacturing data in a year bolstering speculation it will miss its year-end growth target.

A gauge of manufacturing declined to 49.8 in July, according to the HSBC purchasing managers’ index released by Markit Economics today. The figure is the lowest since July 2012, when the index measured 49.4. Its 2013 peak was 54 in January. A reading above 50 indicates expansion and below 50, a contraction.

Turkey joins emerging markets including Russia and Hungary that are showing signs of weakening economic activity as volatility rises amid questions over how long the U.S. Federal Reserve will continue its bond-buying program. Fed Chairman Ben S. Bernanke said in May that he may consider tapering the purchases, sparking a sell-off in emerging market assets. That was amplified in Turkey by anti-government protests throughout June that were sparked when police forcefully evicted demonstrators from Gezi Park in Istanbul on May 31, eventually leaving six people dead and thousands injured.

“Very weak print,” Tim Ash, chief emerging market strategist at Standard Bank in London, said in e-mailed comments after the PMI data today. “It kind of affirms my thinking that the combined impact of lira weakness/volatility and political instability around Gezi will impact significantly on domestic confidence.” Turkish growth probably won’t be much higher than the 2.2 percent expansion last year, he said.

Cutting Forecasts

Economists have been gradually cutting growth forecasts for the country, with the average estimate of 32 economists surveyed by Bloomberg at 3.8 percent on July 25, compared with 4 percent in the previous month’s survey. Turkish central bank Governor Erdem Basci yesterday joined other officials in saying forecasts could be revised.

“It should not be a surprise if we had to revise down our growth expectations while the same is being done in all emerging economies,” Turkish Deputy Prime Minister Ali Babacan said in an interview with CNBC-e television on July 17.

The lira weakened 0.2 percent to 1.9375 per dollar at 10:55 a.m. in Istanbul. The yield on benchmark two-year notes fell 28 basis points, or 0.28 percentage point, to 8.95 percent. That compares with its 2013 low of 4.79 percent on May 17. Turkey’s increase in yields since Bernanke’s May 22 speech is the biggest in emerging markets, according to data compiled by Bloomberg.

“It appears that volatility in the recent period in foreign and domestic markets has had some negative effect on the manufacturing industry,” Murat Ulgen, chief economist at HSBC Turkey, said in an e-mailed report. “Production volumes are staying the same and new order volumes are decreasing.”

To contact the reporter on this story: Onur Ant in Ankara at oant@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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