The decline in the manufacturing sector in the euro area continued

Istanbul Chamber of Industry (ICI) Turkey Manufacturing PMI (Purchasing Managers Index) was 51.5 in April.

The index was recorded as 50.9 in March.

The value recorded in April marked the highest level since December 2021.

According to the ISO data bulletin, many companies reported an increase in new orders and production in April as a result of the stronger demand conditions. Some survey respondents noted that their workload has increased due to the continued recovery following the February earthquake.

In addition, total new business, new export orders and increases in production were faster than in March. The expansion in production was recorded at the highest rate of the last 20 months.
Both the increase in new orders and the disruption caused by the earthquake caused the backlog to increase for the first time in 14 months.

Difficulties in raw material supply continue

Supply chains were the main area where earthquake-related disruptions were directly observed in April, and companies reported that difficulties in supplying raw materials continued. Delivery times increased for the fourth month in a row.

Manufacturers increased their purchasing activity for the first time in nearly a year and a half, due to increased workloads. Despite this, delays in deliveries prevented the increase in input stocks. Some companies started the second quarter by increasing their number of employees.

However, layoffs following the enactment of the early retirement law caused employment to remain almost flat.

Due to the rise in raw material costs and the weakness in the lira, the sharp increase in input prices continued in April as well. Still, the inflation rate fell to the lowest level since the beginning of the year. Some companies attributed this development to the decrease in energy prices. Similarly, the increase in finished product prices was at the lowest rate since August 2022.

The recovery in the Turkish manufacturing sector gained momentum in April. New orders and stronger increases in production enabled purchasing activities to start growing again. Although companies tried to increase employment, retirements prevented this. The effects of the earthquake in February continued in April, especially due to the supply chains and the difficulties faced by companies in supplying materials. Accordingly, backlogs started to increase again after a long period of decline.

Andrew Harker, Director of Economics at S&P Global Market Intelligence

Inflation in sectors lost pace compared to March

According to the Istanbul Chamber of Industry Turkey Sectoral PMI April report, after the earthquake in February, some sectors showed a strong recovery trend, while others continued to have difficulties in getting new orders and increasing their production volume.

Input costs in all sectors monitored continued to rise in April, although inflation in most of them lost pace compared to March. As in March, the number of sectors in which production increased in April was six.

The sectors covered by the survey showed markedly different trends. The recovery in the land and sea vehicles and basic metal industry gained momentum and a strong expansion was recorded in production.

On the other hand, some other sectors, particularly wood and paper products, clothing and leather products, continued to face difficult operating conditions.

Similar to the picture in production, new orders increased in half of the sectors. The strongest increase in new orders was recorded in basic metals, while the sharpest slowdown was recorded in the wood and paper products sector.

EYT effect on employment

While the majority of sectors increased their employment in April, others struggled to expand their workforce as some workers left after the early retirement law came into effect.

The strongest growth in employment was recorded in the chemicals, plastics and rubber category, and this sector increased the number of employees at the fastest rate in the last 16 months.

In sectors where new orders remained stable, employment displayed a weaker outlook. Although input prices continued to increase in all of the 10 sectors followed in April, inflation slowed down in most of them.

While the most significant increase in input costs was experienced in clothing and leather products, the most moderate increase was realized in chemical, plastic and rubber sector companies.

As the strong course observed in both domestic demand and new export orders, which displayed a record increase, supported the pricing power, the fastest increase in sales prices was recorded in the land and sea vehicles sector.

Chemical, plastic and rubber products were the only sectors where the prices of finished products decreased. Problems in the supply of inputs due to the earthquake in February caused delivery times to increase in half of the sectors followed in April. The most obvious deterioration was in land and sea vehicles, where input demand rose sharply due to the increase in workload.