Turkey Sector report
Sectors at a glance
Industry performance outlook
Construction/ Const. Materials
The arrows in this overview represent the direction of change in the Atradius outlook for the industry since the previous update. No arrow will appear if there has been no change in our overall outlook.
Remains Fair Despite impacts of the lockdown (e.g. transport and supply chain issues), agriculture value added is estimated to have grown 3% in 2020, and in 2021, a 4% increase is forecast. No payment delay increase is expected in the coming months.
Remains Poor In 2020 the highly export-oriented Turkish automotive sector suffered from globally deteriorating demand. Domestic sales rebounded in H2 of 2020, supported by the ease of bank borrowing and postponed demand. While a debt enforcement suspension was not extended into H2 of 2020, banks continued to support companies with loans. Therefore, no substantial increase in payment delays and/or insolvencies has been recorded so far. However, liquidity strains and cash shortfalls remain an issue. In 2021 car production is expected to rebound, reaching 1.15 million units (750 thousand units at the end of 2020). However, this assumes that the second wave of the pandemic will be controlled in Q1 of 2021.
Remains Fair Pharmaceutical businesses will benefit from increasing health expenses, and sector value added is forecast to increase almost 7% in 2021. The pharmaceuticals distribution segment shows generally robust business financials, good payment records and low insolvency rates compared to other industries.
Deteriorating domestic and global demand had a negative impact on chemicals performance in H1 of 2020, considering the share of products used in automotive industry. Businesses dependent on commodity imports suffered from the lira depreciation. However, there has been no significant increase in payment delays so far.
Remains Bleak Prior to the coronavirus outbreak, Turkey's construction industry was already struggling, with output declining by 8.7% in real terms in 2019. In 2020 the pandemic also severely impacted construction activity, which contracted 4%. The lira depreciation and high interest rates have pushed up construction and borrowing costs.
The outlook for a comprehensive rebound in 2021 remains subdued, especially for infrastructure construction. Prior to the crisis, the government had been financing major infrastructure projects across the country. Now, due to fiscal constraints, it is unlikely to fund large scale infrastructure projects in the medium-term. While insolvencies have not yet increased, rising business failures are expected in H2 of 2020.
Remains Poor In 2020 private consumption was impacted by low consumer sentiment, currency depreciation and rising unemployment. The financial strength of many smaller non-food retailers has seriously deteriorated during the repeated lockdown periods. Delays in bank payments by smaller non-food brick-and-mortar retailers have increased since H2 of 2020, as have insolvencies and business closures. This worsening trend is expected to continue in H1 of 2021.
That said, online retailers increased sales of furniture and white goods, highly supported by discounts in November and December. However, as credit card payment periods generally have been reduced since December, this could put pressure on expenditures in the future. At the same time, high household debt levels and a modest coverage of formal social safety nets will weigh on private consumption. Retail value added is forecast to grow only 1% in 2021 after a 17% contraction in 2020.
Remains Poor While low consumer sentiment, rising unemployment and currency depreciation affected electronics/ICT turnover in H1 of 2020, sales gained momentum again since September. Sales volumes for electronics and computers increased 10% in October 2020. As most electronics/ICT items have to be imported, currency volatility is an issue. Many businesses still hesitate to reflect the exchange rate in their prices, avoiding a decrease in turnover and a cut in their cash flow. As the financial strength of many businesses has deteriorated, payment delays and insolvencies increased in H2 of 2020, and they are expected to rise further in H1 of 2021.
Remains Good The banking sector is well regulated and adequately capitalized. Banks are not directly exposed to foreign exchange risks, as they are not allowed to carry significant foreign exchange open positions. However, increased financial troubles for businesses and consumers alike could lead to rising non-performing loans. So far, this has been avoided due to a significant increase in bank loans and restructuring in repayments.
Remains Good Food sector value added is forecast to increase 4.5% in 2021. Market competition is fierce, but food producers and retailers have been able to increase both revenues and margins. However, food suppliers to businesses that closed due to lockdowns (e.g. hotels and restaurants) have faced issues.
Remains Poor In H1 of 2020, the sector was negatively impacted by deteriorating global and domestic demand from key domestic buyer industries like automotive, construction and metals. Although there has been a partial recovery in H2, activity continues with a capacity rate of just about 70%. Payment delays increased sharply in H1 of 2020 and remained elevated in H2. Due to the expiry of the decree to suspend enforcement and bankruptcy proceedings in June 2020, the number of concordat (restructuring) and bankruptcy cases has increased. Higher costs for loans and exchange rate fluctuations remain downside risks in H1 of 2021.
Remains Bleak After a 9.5% contraction in 2019, metals value added decreased again in 2020, by 2%. Last year metal producers suffered from deteriorating demand from key buyer sectors (automotive, construction and machines), currency volatility and increased loan costs. Due to the expiry of the decree to suspend enforcement and bankruptcy proceedings in June 2020, the number of concordat (restructuring) and bankruptcy cases is expected to increase in 2021.
Remains Poor Paper producers and printing have been impacted by supply chain disruptions due to lockdown measures. The economic downturn and progressing digitalisation have led to less demand. Non-performing loan ratios for the paper raw materials, paper product and printing segment have been increasing since 2018, mainly due to the lira appreciation. The number of insolvencies in this industry will remain elevated in 2021.
Down from Poor to Bleak Several lockdown measures have severely impacted restaurants, cafes, entertainment businesses and the tourism sector. In July 2020, the hotel occupancy rate was at 31.4%, compared to 75.6% in July 2019, and 33% in the January-July 2020 period. In 2020 hotel and catering value added is estimated to have contracted 16.5%.
Service companies mostly rely on bank loans for their financing needs, lacking state support to compensate deteriorated business volumes. Bank loans are expected to put higher liquidity pressure on the services sector. Non-performing loans and insolvencies have increased in 2020, and they are expected to rise further in 2021. After an estimated 7.5% contraction in 2020 service value added is forecast to decrease again in 2021, by 0.5%.
Remains Poor In 2019 the industry was already impacted by strong competition from abroad (e.g. China) and subdued demand, leading to increased payment delays. Due to the deterioration in demand from key buyer sectors such as construction and automotive, steel production decreased by 20% in 2020. Despite a modest rebound in H2 of 2020, export revenues remain under pressure, due to still modest demand and EU import restrictions. With the ongoing second wave of the pandemic, the outlook for a strong rebound in H1 of 2021 remains subdued. It is expected that smaller steel businesses will face more payment problems and bankruptcies in 2021.
Remains Poor The textile sector has already been particularly vulnerable over the past couple of years due to excess capacity, lack of branded production, strong competition from East Asia, low capitalisation of businesses and diminishing domestic and export demand. The forced closure of shops due to the lockdowns has led to an additional blow to demand. After the end of the first lockdown, many stores experiencing losses were not reopened again. Textiles value added is estimated to have decreased almost 7% in 2020. Due to the expiry of the decree to suspend enforcement and bankruptcy proceedings in June 2020, enforcement and bankruptcy cases have been increasing since H2 of 2020, especially among smaller players.