The real sector confidence index in Turkey surged to a nine-year high in July as the nation eased most COVID-19 restrictions and boosted its vaccination campaign.

The Real Sector Confidence Index (RSCI) was up 1.8 points from June to 114.8, data by the Central Bank of the Republic of Turkey (CBRT) showed Monday. This marked the highest level since April 2012.

The seasonally adjusted RSCI jumped 2.3 points to 112.1 from 109.8 in June, the data showed.

The increasing momentum in the real sector with the opening in July reflects the mobility in the local economy and the still strong foreign demand conditions, said Enver Erkan, chief economist at Tera Yatırım.

The CBRT said the surge was driven by the views regarding the overall course, export orders for the next three months, total orders in the last three months, the total employment in the next three months, fixed capital investment expenditure and the current total order amount.

On the other hand, evaluations regarding the production volume and current product stock in the next three months affected the index downward.

Estimates for the last three months strengthened compared to the previous month in favor of those who expected an increase in production volume, the amount of domestic market orders and the number of export orders.

However, estimates that current total orders are below seasonal norms continued to weaken, while projections that the level of the current stock of finished goods is above seasonal norms strengthened compared to the previous month.

"Although domestic demand with the effect of opening up in the short term has positive contributions, high-interest rates within the framework of the CBRT’s continuation of its tight monetary policy due to high inflation have a limiting effect on this moment," Erkan said in a note.

"Against this, the positive net contribution of exports, as well as employment and investment items that are positive for the real sector, will contribute positively to overall growth. On the other hand, factors that may pose a drawback to the economic recovery, especially the delta variant, should be closely monitored," he added.

Other data by the CBRT showed the capacity utilization rate of Turkey's manufacturing industry climbed on a monthly basis in July. The industry used 76.7% of its capacity this month, up 0.1 percentage point from June, the bank's survey showed.

Among the main industrial groups, the highest capacity usage was 80% for intermediate goods, while investment goods posted the lowest rate at 70.2%.

On the sectoral side, the highest capacity usage was 84.7% in the manufacturing of wood and wood/cork products, excluding furniture, while the lowest rate of 64.3% was recorded in leather production.

Sectoral indices up

Separate data Monday showed confidence in the nation’s key sectors, including services, construction and retail trade increased month-on-month in July.

The services sector rose the most by 5.8% to 114.8 this month driven by the significant improvement in the sub-indices of business situation and demand turnover over the past three months.

The construction sector confidence index climbed 4.7% from last month to 86.3 in July, as both the current overall order books and employment expectations over the next three months bettered.

The retail trade confidence index rose 3.7% month-on-month to 109.6, pushed up by business activity sales over the past three months sub-index.

Calculated from the monthly survey, results are evaluated within the range of 0-200, with sectoral confidence indices signaling an optimistic outlook when the value is above 100, and a pessimistic outlook when it is below 100.