Strong production in 4Q15

Industrial production grew 4.5% y-o-y in calendar-adjusted terms in December. The result came in higher than the market consensus of 3.6%. Industrial production growth in unadjusted terms was also higher than estimated: the figure came in at 4.4%, compared with the market consensus estimate of 4.0% and our expectation of 2.4%. Production growth in 4Q15 was 7.4% in unadjusted terms, bringing annual production growth to 3.2%. It looks like 4Q15 GDP growth will exceed our previous estimate of 3.8%, possibly even reaching 5.3%. This could bring annual GDP growth to 3.9%

In sectoral basis, energy production at 9.5% posted the highest growth on y-o-y basis while capital goods and durable consumer goods production were also strong at 7.3% and 6.7% respectively in calendar adjusted basis. Intermediate goods were moderate at 2.8% while machinery and equipment production growth was at negative territory for the fourth time in a row with 3% y-o-y drop. Despite robust growth in capital goods, production in decline in machinery and equipment as well as intermediate goods does not provide an encouraging picture for future investment and production. There was not a broad based strength in export oriented sectors’ production but motor vehicles posted 7.3% growth whereas basic metals’ production was moderate at 3%. Overall picture is somewhat improving with only 3 sectors contracting compared to previous year in December. In annual basis, manufacturing industry posted 3.6% growth y-o-y in calendar adjusted basis. Manufacture of coke and petroleum products (31.5%), repair and installation of machinery (25.4%), pharmaceuticals (21.8%) and motor vehicles (14.9%) are the top performers within the year whereas mining and quarrying (-4.7%), leather (-11.0%), textile (-3.9%) and machinery and equipment (-1.9%) were among the weak performers of the year. Pick up in economic activity inside and recovery in Europe would support industrial production in 2016, leading to a broad based growth in all sectors. We expect GDP growth to be stronger than 2015 in 2016, thanks to alleviated uncertainties in global financial markets and lower political risk compared to last year.