Türkiye İMSAD Releases October 2018 Sector Report

Building Materials Exports at Highest Level Since 2014 at USD 19.34 Billion

Türkiye İMSAD released its monthly sector report, closely monitored by construction sector and economic circles. In the 'Türkiye İMSAD October 2018 Sector Report', it was noted that the building materials industry has begun to place greater emphasis on exports due to stagnation in the domestic market. In August, when the number of working days declined and Turkey's total exports fell, building materials exports increased 8.8% compared to the same month of the previous year. The report highlighted that with rising export performance, exports reached their highest level since 2014 and are expected to exceed USD 20 billion by the end of 2018. It was also emphasized that while the slowdown in the domestic market led to greater emphasis on exports, this slowdown is not sustainable. The 'October 2018 Sector Report' prepared by Türkiye İMSAD (Turkish Construction Materials Manufacturers Association) as the sector's umbrella organization contained the following findings: Building materials exports continued to increase in August despite the decline in the number of working days. August building materials exports rose 8.8% compared to the same month of the previous year, reaching USD 1.61 billion. Exports got off to a strong start in 2018, carrying the high performance of the first half of the year into the second half. The positive impact of market improvements on exports continued in the second half of the year. However, particularly the slowdown in the domestic market also contributed to the August export increase. Annual exports rose to USD 19.34 billion in August. Building materials exports, which totaled USD 22.1 billion in 2014, fell to USD 17.7 billion in 2015. This figure declined further to USD 16 billion in 2016. In 2017, it rose again to USD 17.3 billion with an 8% increase. In the first 8 months of 2018, exports rose 18.3%, reaching USD 13.27 billion. Strong export growth continued in August, and in the August 2017–August 2018 period, annual exports rose above the USD 19 billion level to reach USD 19.34 billion. Thus exports reached their highest level since 2014. Relative improvements in nearby and neighboring markets and the EU market contribute to export growth. The increase in exchange rates also supports the high export performance in 2018.

Current Construction Work Level Fell 2.1 Points Further in October

The decline in current construction work levels experienced in September continued in October. Significant stagnation began to occur in construction work. As existing work was completed and no new work was started, the level of current work gradually narrowed. The index measuring current construction work levels fell 2.1 points further in October, remaining at its weakest level since 2010. Two important reasons stand out in the decline of construction work: the first is the contraction on the demand side, and the second is the level to which financing costs have risen and the cutting off of financing options. To achieve recovery in current construction work, improvement is needed in both of these conditions.

Contraction in the Construction Sector Is Not Sustainable

The construction sector and construction expenditures grew gradually after 2002. This growth took place above the average growth rate of the economy. Public preferences, policies and support also became a factor accelerating growth. Public infrastructure investments, major projects and urban regeneration activities also supported the construction sector. Many new players entered the expanding market. The construction sector also relied heavily on external financing for the funding of its expanding activities. Bank loans and promissory note sales became important financial tools. However, following the growth achieved in 2017, the construction sector faced accumulated structural problems in 2018. In this context, new policies are needed to establish permanent balance rather than temporary and short-term support on the demand and financing sides of the construction and housing sectors. Indeed, the Turkish Statistical Institute construction sector confidence index data continues to show that the weakening in the sector persists.

Contraction in the Construction Sector Also Leads to Employment Decline

The slowdown and contraction in the construction sector have begun to be felt in construction sector employment. Through rapid growth in recent years, the construction sector reached employment of over 2.2 million during the high-activity summer months. However, the weakening seen in the construction sector on a monthly basis in 2018 has begun to be reflected in employment figures. In July 2018, construction sector employment fell to 2 million, falling 180,000 below July employment of the previous year. The share of construction sector employment in total employment was 7.6% in July 2017 but declined to 6.9% in July 2018. Some construction firms have reduced their workforce due to declining current work in their possession, completion of public projects, inability to secure new public projects, and difficulties in their financial structures.