Turkish Manufacturing Sector Contracts Sharply Amid Tariff-Driven Headwinds
2min read The Turkish manufacturing sector deepened its contraction in April 2025, with the Purchasing Managers’ Index (PMI) falling to 48.7—a 15-month low—marking the second consecutive month of decline. This downturn, fueled by collapsing export demand, rising input costs, and supply chain disruptions, underscores the fragility of the sector amid global trade tensions and domestic economic headwinds. Investors should closely monitor these dynamics, as they may signal broader risks to Turkey’s economic recovery.
Ask Aime: How can I invest in Turkish manufacturing stocks given the PMI's 15-month low?
Demand Collapse Drives Contraction
The April PMI data reveals a stark deterioration in demand. New orders fell to 47.2, their lowest level since mid-2023, as domestic consumers reined in spending amid inflation. Exports, however, suffered an even sharper decline, plummeting to 43.1—the fastest rate since the 2009 global financial crisis. Analysts attribute this to retaliatory tariffs on U.S. goods, which indirectly impacted Turkey’s manufacturing sector by dampening global trade volumes and creating pricing uncertainties.
Ask Aime: "Analyze Turkey's PMI drop to 48.7, revealing manufacturing sector contraction."
The weak demand environment has forced companies to slash production. The production index dropped to 44%, its lowest since May 2020, with sectors like transportation equipment and chemical products leading the decline. Firms reported scaling back output due to weak order books and capital investment cuts amid a “wait-and-see” stance on tariffs.
Tariffs and Inflation Worsen Cost Pressures
Input costs surged to 69.8—the highest since June 2022—driven by tariffs on imported raw materials such as steel and aluminum. These tariffs, imposed by major trading partners, have raised production expenses, squeezing profit margins. Firms passed some costs to consumers, pushing output prices to a four-month high of 58.3. However, weak demand limited their ability to fully offset rising costs.
Supply chain disruptions further compounded challenges. The supplier deliveries index rose to 55.2, as ports faced bottlenecks from tariff-related paperwork and delays. One manufacturer noted, “Tariff disputes with buyers have slowed order confirmations, creating a backlog.”
Employment and Inventory Adjustments
Firms continued to reduce headcounts, with the employment index at 46.5. Layoffs and hiring freezes were widespread in sectors like machinery and textiles, though petroleum and computer-related industries added jobs marginally. Meanwhile, inventories edged up to 50.8 as companies stockpiled inputs to avoid future tariff spikes, risking overproduction if demand fails to rebound.
Sector-Specific Weakness and GDP Risks
Eighteen of 22 industries reported output or employment declines. Transportation equipment and food/beverage products were hit hardest, while petroleum and electronics sectors saw modest growth. The manufacturing contraction is now expected to drag real GDP down by 1.8% annually, per analysts’ estimates.
This data highlights the sector’s vulnerability to external shocks.
Investment Implications
Investors in Turkish manufacturing should prioritize firms with pricing power, diversified supply chains, and exposure to domestic demand. Sectors like petroleum and tech—showing marginal resilience—may offer safer bets. However, the broader outlook remains grim unless trade policies stabilize and global demand revives.
Conclusion
The April PMI contraction underscores the Turkish manufacturing sector’s precarious state, with tariff-driven costs, weak exports, and supply chain strains combining to stifle growth. With 18 of 22 industries in decline and GDP projected to fall 1.8%, the sector’s recovery hinges on geopolitical stability and policy reforms. Investors are advised to remain cautious, focusing on defensive sectors and monitoring tariff developments closely. The road to recovery is long—and fraught with trade-related pitfalls.
