Factory activity in Turkey falls to lowest in two years

• 5th consecutive monthly decline
• Lowest level since March 2023
• Interest rise hurts manufacturers

Turkey’s manufacturing sector has posted its fifth monthly decline in activity, reflecting a slowdown in domestic demand and the impact of political and economic instability.

The manufacturing capacity utilisation rate – how much a factory’s full potential is being used – fell to 74.3 percent in April, according to a report issued this week by Turkey’s central bank.

This is the lowest score since March 2023.

Ayhan Zeytinoğlu, head of the Istanbul-based Economic Development Foundation and chairman of the Kocaeli Chamber of Industry, told AGBI that an increase in the cost of borrowing initiated earlier this month will affect manufacturing further.

“What industries were looking forward to were further cuts in interest rates,” he said. “But now that has changed for the worse.”

Rising borrowing costs and higher levels of political and economic instability since mid-March, including the arrest of a leading opposition figure and the subsequent stock market meltdown, are among factors weighing on industry, with domestic demand easing. 

Added to this is uncertainty over global trade, as Ankara considers the fall out from Washington’s tariff-driven trade policies, with Turkish automotive and steel exports to the US hit with a 25 percent levy.

These uncertainties prompted the Turkish central bank to lift its key lending rate to 46 percent from 42.5 percent on April 17, reversing a trend of rate reductions dating back to December, when the bank began lowering its main policy rate from 50 percent. 

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The drop in manufacturing-capacity usage mirrors a fall in consumer confidence, which dipped 2.3 percent in April to 83.9 points in an index by the state statistics agency Turkstat. Any reading below 100 indicates negative sentiment. 

Of particular concern for the manufacturing sector is a sharp fall in expectations for the coming year for spending on durable consumer goods, with the index falling almost 4 percent to 99.3, tipping it into negative territory. 

This April result was the worst in seven months and reverses gains in the index since January, flagging consumer worries over the economy.