Closely followed by the construction sector and economy world, the Monthly Sector Report of Turkey İMSAD indicates that production increased by 2.1 percent in the second quarter of the year. Production declined by 7.3 percent compared year on year in July. The decline was triggered by the significant decrease in the number of working days in July due to long public holidays .
The September figures of the Monthly Industry Report of Turkey IMSAD, the umbrella organization of the construction materials industry have been disclosed. The following findings were featured in the report: Demonstrating an increased by 4.4 percent in the first quarter of the year 2022, production in construction materials industry grew by 2.8 percent in April the first month of the second quarter, and 3.5 percent in May. There was no change in production rates of the construction materials industry in June. Thus, the increase in production in the second quarter was occurred at the rate of 2.1 percent.
Triggered by the significant decrease in the number of working days due to long public holidays, production declined by 7.3 percent year on year in July. Thus, production fell monthly for the first time in 2022. Domestic demand for construction materials declined in July, while the slowdown in foreign demand has become more clear.
There were diverse changes in production sub-sectors in 2022. While the production rates in 12 sub-sectors increased compared to the previous year in the first seven months of the year, the production in 10 sub-sectors has declined.
The highest production increase in the first seven months of the year were realized in ceramic coating materials with 31.5 percent, in combined parquet and floorings with 21.1 percent, in plastic construction materials with 19.9 percent and in ceramic sanitary articles with 18.4 percent. Float glass and insulating glass production rose by 15.6 percent, iron-steel bar and profile production rose by 11.7 percent. Despite these, the production of bricks and roof tiles declined by 16.9 percent, iron and steel radiators by 14.7 percent and cement and concrete articles by 7.5 percent in the first seven months of the year.
Construction sector has shrunk by 20 percent since 2018
The absolute size shrinking since 2018, the construction sector shrunk in general terms, excluding seasonal increases in quarterly periods. This shrinkage naturally translates into the shrinkage in the domestic construction materials market.
The GDP had an upwards revision by 10 percent in real terms with TurkStat updating its GDP calculation methodology at the beginning of 2018. The construction sector was the most differentiated sector in this revision and came to the forefront. Having a share slightly over 4 percent in 2015 in the former 1998-based series, the construction sector’s share in GDP rose to over 8 percent in the new series. More than a quarter (27.6 percent) of the upward revision which is attributed to the inclusion of undeclared work in the construction sector in the sector size, was due to the increase in the production of the construction sector. The construction sector has been following a downward trend in the growth data released as of the date of the revision due to economic and sectoral influences. Particularly when comparison is made with the production increases in the construction materials industry of the same period, the decline in the construction sector differs from the developments in the field
The construction sector faced recession during the economic rebalancing process in 2019 and in the first half of 2020 due to the impacts of the pandemic. In terms of the remaining periods since 2017, increases have been of question in operations in the second half of 2020 and 2021 However, these increases had no reflection on the growth figures. It can be seen that the construction sector shrank by 20 percent when comparing the TurkStat chain index data pertaining to the first half of 2018 and the first half of 2022.
The construction sector plays a major role in achieving the goals of the new Medium-Term Program
Setting its growth target as 5 percent, the 2023 Medium Term-Program requires greater contribution from domestic demand to be able to achieve it. On the other hand, slowdown and recession conditions are prevalent in the global economy. While exports are expected to contribute 0.8 points to growth in 2023, domestic demand is expected to contribute 4.2 points. Private consumption expenditures are expected to grow by 3.9 percent as an important constituent of domestic demand. In light of these expectations, the construction sector is expected to receive support in the upcoming period, as a major constituent that makes up the domestic demand-oriented growth.
Construction investments and expenditures are determinant in the growth of the construction sector. Construction investments takes place in public and private sector fixed capital investments together with machinery and equipment investments and intangible asset investments. Growth expectations for public and private sector investments were also pointed out in the Medium-Term Program without giving details. Accordingly, private investment expenditures are expected to increase by 3.7 percent in 2022 and 4.5 percent in 2023. It is expected that growth in private sector machinery and equipment investments will be realized between 3-4 percent, while growth in construction investments is will be around 4-5 percent when the effects of the economic slowdown and demand are taken into account. While this growth is considered as a stagnant one, high costs and constraints in financing are expected to limit the private sector’s construction investments in 2023. Hence, the 20 percent decline in building permits obtained in the first half of 2022 also indicates a weaker private sector construction expenditure in 2023.
Realizing a growth by 2.7 percent in 2022, it is aimed that the public investment expenditures rise by 1 percent in 2023 according to the program. This target points out a significant slowdown in public investment expenditures. While the magnitude of public investments in 2023 is estimated to be TL 315.8 billion, it is considered that most of the public budget will be used in order to provide resource for currency-protected deposits etc. practices.
On the other hand, while it was announced in the circular letter issued regarding the preparations for the 2023 investment program that no new projects will be taken to the program, it was stressed that expenditures will be addressed to the ongoing projects. While a significant investment limitation is imposed accordingly, this indicates that the health sector will be the field with the highest investment figures.
Taking place as the most significant project that the public sector can offer support to the construction sector in 2023, since the Social Housing Project which covers 500 thousand housings, 50 thousand workplaces and land , will be completed by the end of 2028, its impact on the sector will be perceived in the years ahead. Financing will be very important in this process for these housings and workplaces to be constructed under control of TOKİ. It is estimated that the project will progress at a very slow pace taking into account that TL 16 billion was allocated in the first phase by the public sector for the project and difficulty that the contractors are expected to have to complete the construction of this magnitude with their own financing facilities. Therefore, the contribution of the project to the construction materials industry in 2023 is expected to be very limited.
