In January, the downwards trend in both the output level and pace of increase in output became visible.

In January, seasonally and working-day adjusted industrial output decreased month-on-month by 3.1 percent. Industrial production has been floating within a narrow interval for the last fourteen months. During the period between December 2010 and January 2012, seasonally and working-day adjusted industrial production index averaged at 126.5. Over this period the highest index value was 3.3 points above the average and the lowest was 2.1 points below the average. The index value for January, announced on last Thursday, equaled the fourteen-month average (Graph 1).

Monthly developments also point at a similar picture. The trend of industrial output (not the pace of increase in output) did not change considerably during the last fourteen months. It decreased by 3.1 in January, following a 2.2 percent drop in November and a 2.5 percent rise in December. In fact, output decreased in eight of the fourteen months examined and the largest declines were observed between February and June 2011. In short, industrial output has been “flat” over the last fourteen months. During the preceding fourteen-month period, however, industrial output had picked up almost constantly.

Let me cut it short: Industrial output has been losing pace for some time now. We have been observing some degree of decline in the annual pace of growth. On the other hand, it was too soon to conclude for a decline in industrial production. With the index value for January, however, the downwards trend in both the output level and pace of increase in output became visible (Graph 2).

Will this downwards trend in the pace of industrial output prevail? It is a tough question. Growth prospects for 2012 are highly uncertain. Export performance is less promising, compared to 2011. Export performance being weaker than that in was 2011 will certainly push 2012 growth down, but not to a level as low as 4 percent. Whether the growth rate will be above or below 4 percent depends on the level of international fund inflows. The second half of 2011 was unfavorable concerning fund inflows. The last two months were, however, promising. 

It is odd
Please do not overestimate the ‘pleasing’ or ‘unfavorable’ outlooks I have mentioned. After all, it is short term fund flows we are talking about. Funds will escape as soon as developed countries start to increase interest rates and withdraw the liquidity they once injected generously. In the end, this will cause both exchange rate and interest rate to rise and fluctuate, disturbing the mood in Turkey. These developments will not take place immediately; but by 2013 we will probably start discussing this. In fact, the economy normally does not desire short term funds that will flow out as rapidly as they flow in. Since domestic savings are insufficient to finance investments required for rapid growth, however, we are trying to find out whether the level of short term fund inflows will be sufficient during 2012. It is quite odd.

Graph 1: Industrial output and average industrial output, seasonally and working-day adjusted, December 2010 – January 2012

Graph 2: Total industrial output, seasonally and working-day adjusted, January 2007 – January 2012

This commentary was published in Radikal daily on 10.03.2012