In the last two days, important production data was announced: September industrial production index and October capacity utilization ratio. These two series in general move together. I said in general because it is harder to calculate the capacity utilization rate in particular for some certain sectors as well as for factories that produce various commodities in one facility, as observable in almost all sectors. Therefore, small fluctuations in the capacity utilization rate might not give sufficient information. We had better examine larger fluctuations. When fluctuations above a threshold level are taken into account, the parallelism in the movements of the two indicators strikes immediate attention particularly as of 2007.

Graph 1 shows the movements in the two indicators as of January 2007. Dotted line represents industrial production. Especially capacity utilization rate and industrial production data for the last and coming couple of months are of critical importance. The reason is: capacity utilization rates started to diminish as of February 2008 compared to the same period the year before. But the fall was not much striking then; it became clear as of August. In August 2008, capacity utilization rate fall down by 4.1 points compared to August 2007. In October, the fall was 6.4 points. In the following months, capacity utilization rate fell down gradually: from December 2008 to April 2009, fall in the rate compared to the same period the year before reached as high as 15 points.

The bitter part of the story is, since August 2009, capacity utilization rate is lower than the year before. That is, rate for 2009 is lower than 2008, which was also lower than 2007. October capacity utilization rate announced yesterday indicate that capacity utilization is 4.9 points lower than 2008. A similar bitter situation can also be observed in industrial production. Turkish industry produced 8.6 percent lower than September 2008 in September 2009. And in September, production was 4.3 points lower than in September 2007. The only consolation could have been that these figures are for September. 'It could have been'; but October capacity utilization rate figure does not imply a favorable picture for September industrial production. In that case, we shall not be surprised if a fall in industrial production is announced for October.

There is no doubt that both capacity utilization rate and industrial production are 'outcomes'. The future developments depend on the changes in domestic and external credit conditions, exports and the confidence in the economy. In this regard, particularly the external credit conditions do not give positive signals.

Graph 1: Capacity utilization rate (CU) and industrial production index (2007 January - 2009 October)

This commentary was published in Radikal daily on 12.11.2009