Business confidence among Turkish manufacturers tumbled to a nine-year low this month and two other measures of economic health also declined, data showed on Monday, reinforcing expectations of a downturn in the second half of the year. Once seen as a star emerging market, Turkey has been rocked by a sell-off in the lira, which has lost some 40 percent so far this year, stoking inflation and raising concerns about a wave of bad debts for banks.
Business confidence among manufacturers slid 6.8 points to 89.6 points in September, central bank data showed, its lowest since April 2009. The index had stood at 96.4 points in August. In other bad news for the Turkish authorities, a measure of confidence in the construction sector dived 16.7 percent in September, official data showed, as financial constraints and slowing demand hit the industry.
Manufacturing industry's capacity utilisation rate - a measure of how much potential output is being used - fell to 76.2 percent, its lowest level in 2-1/2 years, from 77.8 percent in August, central bank data also showed. The central bank has responded to accelerating inflation with a mammoth 6.25 percentage point hike in interest rates and the government followed that with an economic plan designed to restore market confidence. But investors have said the programme is short on details and does not address issues at banks.
"There's no sign that the rate hike will herald a broader improvement in Turkish economic policymaking," economists at Capital Economics said in a note to clients on Monday. "Meanwhile, the government's new economy programme proved underwhelming. The latest data suggest that the economy has entered a deep recession."
Other data released on Monday showed that costs in the construction industry rose by nearly a third in July as workforce and material costs weighed. Construction has been a pillar of economic growth in the last 15 years under President Tayyip Erdogan. A self-described "enemy of interest rates", Erdogan wants borrowing costs lowered to boost the flow of cheaper credit to construction. Turkey's annual economic growth slowed to 5.2 percent in the second quarter and is expected to tumble in the second half. Turkey has said it will freeze new government infrastructure projects to rein in spending.