Turkish industrial production recorded its sharpest fall in 12 years on Monday, sending the lira to its weakest ever level and prompting the central bank to act to support the currency. Turkish Statistics Institute data showed industrial production fell by 21.3 percent in January, fanning recession fears and prompting fresh calls for a major loan deal with the IMF to support the economy.
Economists said the scale of the industrial production fall signalled a deeper than expected contraction and more job losses this year, swelling the budget deficit and supporting the central bank's policy of cutting interest rates.
"No matter which measure or method is used, the serious contraction in industrial production shows the wheels of industry have stopped," HSBC strategist Fatih Keresteci said. After the data, the lira currency weakened to an unprecedented low at 1.82 against the dollar, versus 1.7825 before the release of the data. The currency has lost 18 percent this year, after shedding 25 percent last year.
The lira's fall prompted the central bank to resume foreign exchange-selling auctions from Tuesday after it halted them last October. The bank also said it may intervene directly if the excessive fluctuations in the forex market continues, helping the lira recoup some losses to trade at 1.8040. The daily auctions will initially be for $50 million.
The Turkish economy grew by just 0.5 percent in the third quarter of last year as recession in euro zone hit exports hard, and the IMF expects a 1.5 percent contraction this year. Unemployment at 12.3 percent is a crucial concern for the government ahead of the March 29 local elections.
Industrial production fell by 17.8 percent year-on-year in December, revised data showed, and by 0.9 percent overall in 2008 versus 6.9 percent growth in the previous year. A Reuters poll had forecast a 16.65 percent fall in industrial output.
Constant deterioration in key economic indicators will increase pressure on the government to reinforce the economy against the global economic crisis through signing a loan deal with the IMF. Negotiations were suspended in late January. "It will most probably intensify the pressures on the government to agree with the IMF on a new stand-by programme.
The media will most probably be harshly criticising the government's inaction against the global crisis," said J.P. Morgan Chase analyst Yarkin Cebeci said. Turkey has been locked in inconclusive talks with the IMF over a deal after the latest $10 billion deal expired in May. Prime Minister Tayyip Erdogan said on Monday Turkey would sign a loan deal only if the IMF presents conditions acceptable to Turkey. The government is reluctant to pursue fiscal austerity, which usually comes with the IMF programmes, ahead of March 29 local elections.
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