Turkish industrial production is still negative, with the September 2009 figure showing an 8.6% contraction. That said, capacity usage and consumption figures for Q2 and Q3 of 2009 show slight improvements. Turkeys structurally high current deficit and inflation, traditionally areas of concern, are less so now as a result of a slowdown in consumption and investment and a devaluation of the Turkish Lira by more than 20%. The factors that could now impede a quick recovery are unemployment, which varies between 13% and 16%, and low consumer confidence. Despite the low debt ratio, public finance has been deteriorating as a result of lower tax income, subsidies and public expenditures designed to support economic activities.
The banking sector is still strong, with a high capital adequacy ratio of over 18%, high profitability and a transparent loan portfolio which does not involve mortgage products. That said, non bounced cheques increased by 28% in the first eleven months of the year, indication of a continued deterioration in the payment cycle. However, to put this in perspective, there is a slowdown in the number of bounced cheques, which had shown an increase of 43% in the first five months of 2009.
All sectors have been affected by the economic downturn, especially those connected to retail. Textile, electronics, chemicals and construction remain relatively higher-risk sectors due to the dramatic fall in consumption, shrinkage in borrowing opportunities and worsening liquidity conditions. The textile sector remains particularly vulnerable, due to a combination of excess capacity, lack of branded production, low capitalisation, diminishing domestic and export demand, Far East competition, and non-performing bank loans of around 13%.
As Turkeys second largest export sector and an important customer of several other industries, the outlook for automotive is not that promising: almost all the main manufacturers have periodically suspended production during 2009 and early 2010.
Related to electronics, as consumer confidence is still low, manufacturers, distributors and, especially, retailers face liquidity problems and suffer from narrowing margins as a result of fierce competition in a shrinking market.
Despite the improvements in macro economic indicators, the deterioration in payments and liquidity in many sectors remain a major worry.