Turkey’s manufacturing industry in August strengthened for a third straight month as it pulled out of the depths of the coronavirus (COVID-19) crisis, but the weakness of the Turkish lira resulted in a sharp and accelerated increase in input costs for companies, according to the latest purchasing managers’ index (PMI) survey data on the country’s manufacturing sector.

As the rate of inflation quickened to the strongest seen since October 2018, manufacturers raised their selling prices to the greatest extent in 23 months, the analysis from Istanbul Chamber of Industry and IHS Markit showed.

The headline PMI registered 54.3 in August, down from 56.9 in July “but still comfortably above the 50.0 no-change mark to signal a solid monthly improvement in business conditions”, IHS Markit said. It added: “The health of the sector has now strengthened in three successive months, following a steep downturn due to the coronavirus… pandemic.”

Commenting on the survey data, Andrew Harker, economics director at IHS Markit, said: “Turkish manufacturers were able to largely sustain the strong pace of growth seen in the previous month during August, with the latest PMI data suggesting that the sector continued to make inroads into the output lost during the COVID-19 downturn. Helping firms to expand output further was another month of job creation. Less positive were signs of building inflationary pressures, with both input costs and output prices rising at the sharpest rates for just under two years.”

Liam Peach at Capital Economics said of the latest recorded PMI for Turkish manufacturing: “ Turkey’s manufacturing PMI slipped to 54.3 in August, but this came on the back of a nine-year high of 56.9 in the previous month. The PMI still points to industrial production growth of around 15% y/y in Q3. The output prices index rose from 57.5 in July to 61.9 in August, its highest since September 2018. This provides signs that the sharp fall in the lira over the past month has fed through quickly into price pressures and will keep the focus of the central bank on tightening monetary conditions.”

Source: Capital Economics.

IHS Markit said in further comments issued with the August PMI reading that recent months have seen improvements in customer demand amid a loosening of COVID-19 restrictions. “This trend continued in August, with new orders rising at a marked pace that was among the fastest in the past two-and-a-half years,” it added. “New export orders also increased, albeit at a slower pace than total new business. Production also continued to rise, extending the current sequence of growth to three months. After rising at the steepest pace in over nine years in July, the pace of expansion softened but remained sharp.

“Higher output requirements led to a third successive rise in employment, with the rate of job creation solid again in August. Rising operating capacity enabled firms to keep on top of workloads in spite of a further sharp expansion in new orders. Backlogs of work were therefore broadly unchanged, following an accumulation in the previous month.

“As well as taking on additional staff, new order growth encouraged firms to increase purchasing activity. Meanwhile, stocks of purchases rose only marginally as inputs were used directly to support increases in production.”