August IP: Cross the bridge

Turkish Economy: August IP

Cross the bridge

Industrial Production decreased by 0,1% MoM versus a market expectation of a 0,5% increase (seasonally and working day adjusted). When adjusted for working days the index rose by 5,2% YoY.

Key Take-aways:

  • Manufacturing tracks Turkey’s 5+% growth rate (Figure 1 ).
  • «Bridge day» effect posed a serious challenge in August due to holidays – one of the reasons behind weakness relative to market expectations.
  • Working day adjustments may continue playing tricks in September. However third quarter seems secure with the strong 2,3% growth recorded in July.
  • Recovery in Europe’s major economies (today’s German manufacturing data announced at 2,6% MoM, highest in last six years) and improving global trade volumes suit well for Turkish manufacturing which can carry its momentum further into fourth quarter.

Statistical Adjustment Effects

Turkish economic performance runs a high correlation in regard to construction activity. An early indicator for construction can be found in non-metal mineral processing. In the second quarter non-metal mineral processing has accelerated by 2,5% QoQ. Consequently construction activity has accelerated by 1,6% QoQ in the second quarter (Figure 1).

Industrial production series are volatile almost in every country around the World. Turkish industrial production series has a standard deviation of 2,3%.

Calendar day and seasonal adjustment makes it harder to track the data on a monthly basis. However looking at the trend seems a better way of analyzing this particular data. Mean of series stands at 0,3% MoM. Year-to-date the series averaged 0,6% gain on a monthly basis.

In August government announced public holidays for the whole week before Eid Al-Adha. The same week coincided with national Victory Day observed on the 30th day of August every year. Despite working day adjustment such «bridge» days always pose a serious challenge and usually cause additional volatility in the series. Therefore the slight 0,1% decline seems very comfortable which was probably corrected due to positive contribution of seasonal factor. August has a negative seasonal factor that adds on top of the un-adjusted value.

The month of September is most unpredictable for this series (Figure 2).


September had 19 working days this year which will end up with an upward revision. Also the seasonal factor for September is a negative value (similar to August) which will also contribute to the final reading.

However the irregular component may cause a negative reading in September (pls. see Appendix).

Unless a huge shock appears in September which does not seem very likely third quarter may close with above 1% growth rate in industrial production (mean 1,0%).

Summer months are usually the weakest due to vacation time used in the month of August. This year Turkish production seems stronger than a usual year (Figure 3).

German factory orders were announced at 3,6% for August. The actual production in Germany for the same month at 2,6% was the strongest in last six years. Global trade volumes continue recovering and European economies gathering their strength again. Prospects in Turkish economy seem good for external demand and production.