Turkey’s real economy data likely to soften in months ahead

The real economy data of Turkey is expected to weaken in the months ahead. Turkish June’s manufacturing data surprised greatly to the downside. The nation’s industrial output declined 1.4 percent on sequential basis in the month. Consensus expectations were for a rise of 0.6 percent. June’s figure reversed May’s rise of 1.6 percent month-on-month, leaving seasonally-adjusted output level slightly lower than it was six months ago, said Commerzbank in a research report.

The weakness in June’s data happened predominantly because of a severe drop in manufacturing of consumer durables and capital goods, exactly the segments that depend on business and consumer sentiment to be stable, added Commerzbank. This trend was witnessed before the attempted military coup in July. The data for July is expected to be weaker because of disruptions caused by the coup and also due to additional religious holidays that hurt activity during the first half of the month.

The effect of the attempted coup on hard economic data will be quite evident in July’s reading. Already the Turkish tourism sector is in doldrums. This suggests that there is a higher possibility of Fitch and Moody’s downgrading sovereign rating in the coming months.

Moody’s is expected to lower the rating by mid-October, whereas Fitch is expected to lower its outlook to negative from stable on August 19.

“Such an outlook for real economy data over coming month means that the 'period of calm' for the lira and for Turkish assets in general could soon come to an end. We see USD/TRY at 3.25 by year-end,” added Commerzbank.