Turkish factory activity gathers pace, Europe’s downturn deepens

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Türkiye’s factory activity expanded at a faster pace in April, a survey showed Tuesday, propelled by growth in new orders and output, as the sector continued its recovery in the wake of massive earthquakes in early February.

A similar survey showed eurozone factory activity contracted further last month, albeit not by as much as initially thought, while the cost of raw materials fell at the fastest pace in nearly three years.

Türkiye’s Purchasing Managers’ Index (PMI) for manufacturing rose to 51.5 last month from 50.9 in March, staying above the 50-point mark that separates expansion from contraction, the Istanbul Chamber of Industry (ISO) and S&P Global said.

More robust demand led to an increase in new orders and output, the panel said, with some respondents indicating rising workloads amid the rebound from the Feb. 6 earthquakes, which killed more than 50,000 people, razed hundreds of thousands of buildings and ripped through the southern region’s infrastructure.

“The recovery in the Turkish manufacturing sector gathered momentum in April, with gains in new orders and output solidifying and prompting a renewed increase in purchasing activity,” said Andrew Harker, economics director at S&P Global Market Intelligence

Backlogs of work increased for the first time in 14 months due to a combination of higher new orders and disruption from the earthquake, S&P Global said.

Supply chains were still disrupted after the earthquakes as firms reported difficulties in obtaining materials, the survey showed, with delays preventing a rise in stocks of purchases.

Although some firms took on staff, the number of retirements due to a new law kept employment levels broadly unchanged in the manufacturing sector, the panel said.

The Turkish lira weakness and high material costs caused input prices to rise sharply and manufacturers increased their output prices as well, albeit at the softest rate since August 2022, the panel said.

Broad-based decline

Meanwhile, the HCOB final manufacturing PMI in the eurozone fell to 45.8 in April from March’s 47.3, just beating a preliminary reading of 45.5 but well below the 50-point line for a 10th consecutive month.

An index measuring output, which feeds into a composite PMI due on Thursday that is seen as a good guide to economic health, dropped back below the breakeven mark to 48.5 from 50.4.

“This decline has been fairly broad-based across the eurozone, with regional PMI indices in France and Italy also showing a drop in output, while output in Germany and Spain was nearly stagnant,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

Input costs falling at the fastest pace since May 2020 meant factories barely increased their prices yet demand still weakened. The output prices index fell to a 29-month low of 51.6 from 53.4.

“Nevertheless, central bankers have no reason to relax. That’s because both the PMI flash services price data for April and the Eurostat data available through March for services inflation continue to reflect significant price pressures,” de la Rubia added.

The European Central Bank (ECB) is widely expected to increase interest rates by 25 basis points on Thursday as it fights to bring inflation back to its 2% target.

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