Turkey’s calendar-adjusted industrial production index gained 6.4% y/y in May, very slightly higher than the 6.3% y/y growth registered in April, data from national statistics office TUIK showed on July 17.

Markets had expected 5.5% y/y, according to a Reuters poll.

“We remain comfortable with our view that the Turkish economy will experience an abrupt slowdown,” Jason Tuvey of Capital Economics said in a research note, adding that a quarter or two of negative GDP growth still seems to be on the cards. Capital Economics’ forecast for Turkish GDP growth of 3.5% in 2018 remains well below the consensus.

“The stronger-than-expected Turkish industrial production data for May, at first sight, suggest that the economy has weathered the recent financial market turmoil, but we doubt that this resilience will last. Indeed, there are signs that underlying momentum has weakened and other low-profile data point to a sharp slowdown,” Tuvey detailed.

“Financial conditions have tightened for some economies with large external deficits— notably Turkey, where growth is set to soften from 7.4% in 2017 to 4.2% this year,” the IMF said in its July edition of its World Economic Outlook Update. The Fund’s previous 2018 GDP growth forecast for Turkey was 4.4%.

Industrial production in Turkey has now stayed in annual growth territory for an uninterrupted 20 months running from October 2016 to May this year. Growth peaked with the 14.7% gain seen last July due to the base effect caused by the failed coup attempt in July 2016, after which Turkey hit an economic soft spot.

A 13.7% y/y rise was posted in December after which the annual growth rate declined for four months in a row.

Industrial production grew 8.8% in the first quarter of 2018, showing no real change of pace compared to the last quarter of 2017, according to the latest GDP data. In Q1 2018, the average monthly calendar-adjusted industrial production growth stood at 10% y/y. April and May data confirmed the expected slowdown but at a more gradual pace.

Turkey’s Manufacturing Purchasing Managers' Index (PMI) recovered slightly from 46.4 in May - the lowest level recorded since April 2009 - to 46.8 in June, IHS Markit said on July 2.

Average annual industrial production growth quickened to 8.9% in 2017 from 3.4% in 2016, according to TUIK’s revised series of data. The previous data set pointed to average annual growth of 6.3% in 2017 and 1.8% in 2016.

Turkey’s manufacturing boom has been substantially founded on the government's TRY250bn (€44bn) credit guarantee fund (CGF) for backstopping bank loans to businesses. Following the attempted coup and the brake it put on economic growth, Turkey spurred the economy by upping spending across the board, hiking wages, pouring capital into investments and guaranteeing loans with the CGF.

State-backed incentives have lost pace in 2018 despite the June 24 snap polls. Turkey will also hold local polls in March 2019 and the possibility of early elections is on the table due to balancing stresses that may be ahead for the overheating economy.

The government is targeting annual GDP growth of 5% from 2017 to 2020.