May Construction Output Declines 3%: Signals of a Slowdown in Turkey’s Building Boom

In May, Turkey’s construction output fell 3% year-on-year, reaching 12.5 billion TRY, signaling a slowdown in the sector.

Declining Construction Output: Why It Matters

■Short‑term cost hikes (energy, steel) pushed production costs up, while mid‑term purchase demand waned.

■The annual growth rate slipped to 3%, after a 5% rise the month before, highlighting sectoral imbalances.

Behind the Numbers: Supply Chains and Demand Dynamics

■Steel and cement prices peaked with a 12% rise over the past two months.

■Construction labor declined by 1.2%, limiting production capacity.

■Housing and commercial project applications fell 8%.

Policy Implications: Credit Policy and Interest Rates

■The Central Bank of Turkey (TCMB) kept the short‑term rate at 1.5%, aiming to stabilize borrowing costs.

■SME lending fell 4.3%, tightening financing for construction.

■Macro‑economic measures include a planned 0.75% interest rate cut.

Market Reactions: Investors and Companies

■State House Investment Group reported a 15% decline in construction.

■Bursa Istanbul shares of relevant firms dropped 2%.

■Investors are reducing dividend payouts amid lower demand expectations.

Outlook: Recovery Signals and Risks

■The government plans 2.5% mortgage incentives for 2025.

■Falling energy costs could reduce production costs by 3%.

■External trade volatility and inflation pressures remain risk factors.

Kerem Tufan: The drop in construction output stems from the combined impact of tight credit and high costs. Short‑term recovery is expected with rate cuts and SME support, but long‑term sustainability hinges on effective cost management.