< Previous10 OCTOBER 2022 EXECUTIVE SUMMARY Two important developments that marked the global eco- nomy in 2021 were the strong economic recovery after the sharp contraction during the pandemic year and the rise in inflation. Both the normalization process, which started with vaccine roll-outs in the said year, and the increase in demand created by expansionary monetary and fiscal po- licies immensely contributed to growth. The pandemic-in- duced, ongoing supply-related problems that emerged in the face of the rapid and strong increase in demand resul- ted in inflation. The global economy, which had contracted by 3.1 percent in 2020, grew by 6.1 percent in 2021. The industrial sector and merchandise trade were the two main drivers of reco- very as the pent-up demand for goods had to be addres- sed and services started the normalization process later. A number of critical issues were carried over from 2021 to 2022, such as commodity price hikes, ongoing supply problems, possible effects of normalization on monetary policies, and a narrowing fiscal space in several countries. Being one of the very few economies that recorded growth in 2020, Türkiye also displayed a strong economic growth performance with 11.4 percent in 2021. The mix of growth parameters mirrored the global trend, with industrial pro- duction and exports being the main propellants. As the increasing foreign demand led to a need for capacity ex- pansion, machinery and equipment investments also played a key role in supporting the growth. The global inflationary trend manifested itself in Türkiye’s economy in high inflation, and global price pressures further worse- ned the inflationary trajectory. Looking at the industry, we see that it was not only pro- duction but also the entire value chain that enjoyed a high rate of increase. In the manufacturing industry, only one of the 24 sub-sectors closed the year with a decrease in production, while 15 of them recorded above-average growth. In 2021, the industrial sector also contributed sig- nificantly to the recovery in the labor market and increased its share in total employment. With a certain level of push by the pandemic, the manufacturing industry had seen a remarkable increase in productivity per worker in 2020. In 2021, exports of industrial products rose by nearly 35%, and although there were some changes in the technology intensity of exports, the exports of mid-to-high-tech and mid-to-low-tech goods continued to dominate. The results of the 2021 edition of Türkiye's Top 500 Indust- rial Enterprises (ISO 500) survey, the highlights of which are listed below, provide striking insights in line with the outlook of the industrial sector. The number of private enterprises in the ISO 500 increased by 1 to 492, while the number of publicly traded enterprises decreased to 8. In 2021, the ISO 500 survey saw a larger-scale change. The number of new entries to the ISO 500 survey was 64. 39 of these were in the ISO Second Top 500 list of last year, while the remaining 25 made it directly to the list from outside the ISO 1000. 436 companies were listed in the ISO 500 in both 2020 and 2021. Tüpraş, the leader in production-based sales, maintained its long-standing position in 2021 as well. The enterprise ranking first in value-added generated preferred to rema- in anonymous. Ereğli Demir ve Çelik was the most profi- table enterprise and Ford Otomotiv maintained its leader- ship position in exports. The share of the ISO 500 in the economy increased. The share of the ISO 500 in the industry’s value-added rose from 19.1 percent to 20.8 percent and their share in GDP increased from 6.9 percent to 7 percent. The ISO 500 en- terprises outperformed the general industry and the ove- rall economy. The downward trend in the number of foreign-invested enterprises, publicly traded enterprises and ICI-member enterprises continued. The number of foreign-invested enterprises dropped by 1 to its lowest in recent years with 109. Despite the significant increase in IPOs, the number of publicly traded enterprises in the ISO 500 decreased by 2 to 65. The number of ICI-member enterprises declined by 3 to 158. In 2021, both production-based sales and net sales re- corded the highest growth rates in recent years, with 73.8 percent and 74.5 percent, respectively. The high rate of growth in sales was driven by commodity and product price hikes, as well as the fluctuations in inflation and ex- change rates. The exports of the ISO 500 achieved a record-breaking increase of 33.9 percent, reaching a record-breaking $85.8 billion in 2021. The ISO 500 accounted for 38.1 per- cent of Türkiye’s overall exports, and 39.4 percent of in- dustrial exports. The rapid economic recovery and growth had a positive impact on the profits of industrial enterprises. Their total pre-tax profit and loss increased by 137.2 percent, and earnings before interest tax depreciation and amortizati- on (EBITDA) climbed by 119.7 percent. The private enterprises within the ISO 500 increased the number of their employees by 6.1 percent in 2021, and the wages and salaries paid rose by 34.7 percent.OCTOBER 2022 11 As the borrowing trend picked up momentum, the matu- rity structure of debts changed. In 2021, total debt grew by 71.1 percent, while the upward trend in short-term de- bts soared significantly high above that of the long-term’s (56.1 percent) with 81 percent. In the same year, the financial debt grew slower than total debt with a 59.3 percent increase. The use of commercial borrowing to finance operations increased. In 2021, equity capital rose by 53.2 percent. This growth, however, was below the balance sheet growth of 65.4 per- cent. The share of total debts in the resource structure increa- sed and exceeded the 70 percent mark for the first time with 70.7 percent. However, the share of equity capital dropped to 29.3 percent. The share of financial debt in total debt fell to 52.8 percent. The share of other debts was 47.2 percent. Meanwhile, the share of short-term financial debt in to- tal financial debt grew from 41.2 to 42.8 percent in 2021. Short-term financial borrowing was the most preferred. In 2021, the total debt/equity capital ratio increased from 216.4 percent to its all-time high of 241.5 percent. Looking at the share of current and fixed assets in total assets, the share of the latter dropped by 3.2 points to 33.1 percent in 2021. In 2021, the number of ISO 500 enterprises that recorded a profit in terms of their pre-tax profit/loss for the period declined from 423 to 405, and the number of enterprises that recorded a loss climbed from 77 to 95. In 2021, the number of enterprises that recorded a profit before interest, tax, depreciation and amortization decre- ased by 3 year-on-year (YoY), to 489. Profitability rates also improved in 2021. Return on sales climbed by 2.5 points to 9.5 percent, return on assets inc- reased by 3.1 points to 10.3 percent, and return on equity jumped by 12.5 points to 35.2 percent. EBITDA, which had increased continuously since 2013 – except for 2019 – when it started to be calculated, surged by 119.7 percent in 2021 to TL 405.3 billion. Operating profitability for 2021 also increased by 4 points to 14.8 percent. Total operating profit rose by 139.4 per- cent to approximately TL 342 billion. The fluctuations in financial conditions and foreign ex- change rates in 2021 affected the financial expenses of the enterprises. In 2021, the ISO 500’s financial expenses amounted to TL 208.9 billion following a 135.2 percent increase. The ratio of financial expenses to operating pro- fit fell from 62.2 percent to 61.1 percent. Non-operating revenues followed suit as net foreign exc- hange revenues went up. In 2021, the ISO 500’s net non-o- perating revenues grew by 122.8 percent to TL 96.8 billion. In the distribution of net value-added by factor incomes, the share of profit as national income increased from 30.3 percent to 39.7 percent, and the share of interest paid from 25.3 percent to 28.1 percent, while the share of wages and salaries paid declined from 44.5 percent to 32.2 percent. The steep incline in the domestic and foreign sales tra- jectories in 2021 had a positive effect on asset turnover. The asset turnover, which was 1.03 in 2020, rose to 1.09 in 2021. In 2021, net production-based sales per employee grew by 64.6 percent to hit TL 2,705,400. An inflation adjust- ment based on the year-end CPI points to growth in real terms. The increase in production and higher capacity uti- lization with a view to addressing domestic and foreign demand boosted labor productivity. The survey data for 2021 reveal an R&D expenditure of TL 8.97 billion, with a 43.8 percent increase over the pre- vious year. In the same period, the ratio of R&D expenses to production-based sales fell from 0.53 percent to 0.44 percent. This decline stemmed from a significantly large gap between the rate of increase in production-based sa- les and R&D expenses, with the former being the highest. Reaching 271 in 2020, the number of enterprises with R&D expenses declined to 265 in 2021. This decrease can be mostly attributed to the enterprises operating in the food sector. In 2021, low-tech industries within the ISO 500 accoun- ted for the highest share of value-added generated at 33.3 percent. The share of this group decreased by 4 points YoY. The share of mid-to-low-tech industries rose to 32.4 per- cent following a 0.9-point increase. The share of mid-to- high-tech industries climbed to 28.3 percent following a 3.5-point increase. The share of high-tech industries was realized as 6.1 percent, down from 6.4 percent. For the first time in 2019, the share of mid-to-high-tech and high-tech industries exceeded 30 percent. This trend of increase continued in 2020 and 2021, with the share ri- sing to 31.2 percent and 34.3 percent, respectively.Developments in Türkiye's economy and the global economic landscape play a determining role in the performance of the industry. DEVELOPMENTS IN THE WORLD AND TURKISH ECONOMYOCTOBER 2022 13 In 2021, the global economy recovered sharply. Following the shock of the COVID-19 pandemic in 2020, the world economy had an optimistic outlook for 2021. The main reason for this optimism was the vaccine studies carried out against the pandemic. Accordingly, 2021 was predicted to be the year when the world would reclaim its growth trend. Several vaccines were developed and approved for admi- nistration, with vaccinations starting in 1Q20. Developed countries fully vaccinated the majority of their citizens in 2021. Vaccination efforts were slower in developing countries, and despite international aid, vaccination levels of developed countries in 2021 were inadequate. Lockdowns and restrictions continued in 1Q21 due to the pandemic. However, as vaccines proved to be successful in fighting the pandemic, lockdowns and restrictions were gradually lifted. During that period, pandemic measures applied mostly to the unvaccinated. During the summer, the fourth wave of the pandemic hit the Asian countries the hardest. But, accelerated vaccination efforts helped to keep the fourth wave of the pandemic under control and limit its impact. In line with these developments regarding the pande- mic, the world economy entered a process of recovery as of 1Q21. As the second quarter rolled in, this recovery turned into rapid growth. Relaxed measures entailed by increasing vaccination levels supported the growth trend. After a halt that had lasted more than a year, activities, especially in the service sector, continued. Economies be- nefited from the fact that the expenses, which had been deferred during the lockdown, started to be charged. Global growth was at 6.1 percent in 2021. Fast recovery and the new normal conditions laid the groundwork for the world economy to grow by 6.1 per- cent in 2021 and to compensate for its losses after the contraction in 2020. Almost all economies enjoyed ex- pansion in 2021, with growth rates being 5.2 percent in developed countries and 6.8 percent in developing countries. While the growth performance in 2021 largely remedied the pandemic-induced losses, there were still vaccinati- on-based differences among regions and countries. For this reason, many underdeveloped and developing count- ries achieved limited growth, thus further widening the regional development gap. The US economy grew by 5.7 percent in 2021. The Europe- an Union and the Eurozone also saw high rates of growth. In 2021, the EU grew by 5.4 percent, the Eurozone by 5.3 percent, Japan by 1.6 percent, and the UK by 7.4 percent. Looking at the breakdown of emerging economies, de- veloping Asia stands out with a growth of 7.3 percent. However, the disparity among these countries is quite large. China, one of the few economies recording growth when the COVID-19 shock hit in 2020, gained a strong momen- tum with 8.1 percent in 2021, making a significant cont- ribution to global growth. India, which contracted by 6.6 percent in 2020, showed a recovery of 8.9 percent in the following year. Growth in the ASEAN-5 countries, where strict lockdown conditions were imposed in 2021, remai- ned limited with 3.4 percent. Developing European countries achieved a high growth rate of 6.7 percent in 2021. Middle Eastern and Central Asian countries grew by 5.7 percent. Rising energy and commodity prices helped the growth trajectory to climb further in this region. In Sub-Saharan African countries, which lagged far behind in vaccination levels, the growth was realized as 4.5 percent. The “great reopening” had a positive impact on the sectors. In 2021, vaccination activities against the pandemic became effective in a short time. Accordingly, lockdowns and restri- ctions affecting economic and social activities were gradu- ally lifted for most of 2020. This process was dubbed as the “great reopening” and had a positive impact on the sectors. Source: IMF, World Economic Outlook, April 2022. World 5.26.86.1 GLOBAL ECONOMIC GROWTH RATES - 2021 (%) Developed CountriesDeveloping Countries14 OCTOBER 2022 And in 2021, there was a controlled return to social activi- ties, indoor activities, educational institutions, public insti- tutions and workplaces, which, in turn, supported econo- mic activities. In 2021, consumption figures also significantly increa- sed. The need and demand for several products saw ra- pid growth. The retail industry was marked by a period of “revenge consumption”. This consumption trend and the restrictions’ being eased during the celebration periods in the second half of the year led to a significant expansion of the demand for services and industrial products. In 2021, governments and central banks continued to sup- port the economy. The new administration in the US ex- panded its support programs, and central banks around the world, especially the FED, continued their quantitative easing policies throughout the year. Ongoing support also helped to remedy the labor force loss caused by the pan- demic, and the recovery in employment also supported the economies. With the rising demand in 2021, manufacturing industry production and finished goods trade gained a significantly upward growth momentum. As demand soared, orders were backdated and increased in quantity. This industrial outlook also brought along supply, production, and deli- very challenges. Nevertheless, the industry displayed a robust growth performance for most of the year. World merchandise trade grew by 26.3 percent in 2021. In 2021, global exports rose by 9.8 percent in volume and 26.3 percent in value. Thus, the global export volume rea- ched its highest annual level with $22.3 trillion. 2021 saw a 15.5 percent increase in average export unit prices. Sig- nificantly high growth rates were recorded, both in volume and value. The growth in volume was around twice the contraction of the previous year. Two main reasons may be listed: DEVELOPMENTS IN GLOBAL GOODS TRADE (%) Source: World Trade Organization, April 2022. 201920202021 Goods Trade ($ Billion)19,00517,64522,284 Goods Trade Growth (by value, %)0.3-4.79.4 Goods Trade Growth (by volume, %)-2.8-7.226.3 Export Unit Price (change, %)-3.1-2.715.5 The first reason is the additional demand for supply that emerged with the change in global supply chains. The second is the piling up of demand for orders due to supp- ly chain security. This is also attributable to the accelera- ting economic growth and the return of demand, which was delayed during the great reopening. In addition, the restructuring in supply chains and the increased focus on digitalization and sustainability compliance investments also supported the growth in exports in terms of volume. Again, the changes driven by the transition to renewable energy and sustainability compliance boosted a volume-based growth in exports. With climate change, agricultural and food products tra- de is also growing. Inflation rose on a global scale. One of the greatest legacies of the pandemic in 2020 to 2021 was the increase in inflation in the emerging con- ditions. Inflation started to increase around the world in 2021 and the year-end 2021 saw peak levels in many de- veloped and developing countries. This global scale rise in inflation stemmed from supply-side problems and cost increases, while the contribution of demand was relati- vely small. GLOBAL INFLATION AND PRICE DEVELOPMENTS - 2021 Annual Change (%) 3.1 5.9 26.8 67.3 Consumer Prices (Developed Countries, Average) Oil Prices Consumer Prices (Developing Countries, Average) Non-oil Commodity Prices Source: IMF, World Economic Outlook, April 2022.OCTOBER 2022 15 Global inflation started to climb primarily due to the inc- rease in transport costs and commodity prices. The prob- lems in supply chains led to significant increases in input prices. In late 2021, energy prices followed suit with a considerable jump. With the transition to renewable energy, natural gas and electricity prices were the first two to go up. With an ex- pectation of increase in demand, oil prices also rose sig- nificantly. Food prices followed an upward trend throughout the year because of supply chain security issues caused by climate change and the high rates of increase in produc- tion inputs, especially fertilizers. Quantitative easing policies continued throughout the year. The quantitative easing policies, first introduced in Mar- ch 2020 due to the pandemic, continued until the end of 2021 and became one of the key drivers of the rapid glo- bal economic recovery. Central banks had initially considered the upward infla- tionary trend that marked 2021 as a temporary situation emerging with pandemic conditions. However, the developments in 4Q21 revealed that there was a permanent inflationary trend. Accordingly, in 4Q21, central banks stopped quantitative easing (QE) and star- ted focusing on monetary tightening policies. The Fed, the central bank of the U.S., was one of the first banks to implement a monetary tightening policy and end its QE program, which it launched with the onset of the pandemic, as of February 2022. The Fed began to inc- rease interest rates in March. The ECB ceased the QE through the Pandemic Emergen- cy Purchase Program (PEPP) in March 2022 and hiked the policy rates by 50 base points at its July meeting. This was the first hike in 11 years and ended the 8-year nega- tive policy rate policy. The Bank is expected to continue its tightening cycle, however, the future outlook is less predictable compared to the Fed, given the looming re- cession due to the energy crisis, historically high inflation and growing concerns over a new debt crisis stemming from the rising long term bond yields. While among the major central banks the Bank of Eng- land was the first to raise interest rates, the Bank of Ca- nada was the first to cease its QE program. Most of the central banks of other developed and developing count- ries started to switch to monetary tightening policies in 4Q21, a shift which gathered pace as the inflationary pressures proved more persistent than previously expe- cted. The global industrial sector showed rapid expansion in 2021. In 2020, the world industrial sector started to recover af- ter the contraction caused by the first wave of the pande- mic, and the Global Manufacturing Purchasing Managers Index (PMI) closed 2020 with 53.8. The sub-indicators of output, new orders and employment closed the year 2020 with growth. In particular, the output index, which rose to 54.9, signaled growth in the global industry. The global industry entered 2021 with a momentum that had built up in late 2020. As a result of the grand opening, return to work, and normalization in economic and soci- al life, the demand for industrial goods saw a steep rise. Accordingly, global industry indicators pointed to a rapid growth performance throughout 2021. With the rise in consumption and demand, as well as the continuing supply-side constraints, procurements were backdated and stocks increased across industries, thus triggering rapid growth in production The Global Manufacturing PMI data pointed to a signifi- cantly high growth, registering 54.2 at the end of 2021, while the output sub-index closed the year at 53.3. New orders received at year-end were high, denoting a positi- ve outlook for demand. The employment index was also in the expansion territory at the end of 2021. Source: S&P Global. Note: Figures above 50 indicate improvement in operating conditions, while figures below 50 indicate deterioration. GLOBAL MANUFACTURING PMI (PURCHASING MANAGERS' INDEX) AND SUB-INDICES April 2020 December 2020 June 2021 September 2021 December 2021 Global PMI39.853.855.554.154.2 Output32.554.954.452.053.3 New Orders31.554.455.853.953.4 New Export Orders27.151.153.251.051.2 Employment41.550.152.651.451.616 OCTOBER 2022 The industries of the U.S., the EU and Japan saw rapid growth. The industrial sectors in the U.S., the EU, China and Japan boast the largest share in the global industry. In 2021, the industries of these economies recorded high growth ra- tes. China, which recovered early from the shock of the pandemic in 2020, followed a more balanced growth tra- jectory in 2021 compared to its potential. In addition to the support provided by the Fed, the fiscal stimulus packages announced by the new administration increased growth, with higher demand driving the rapid expansion in the industrial sector. The U.S. Manufacturing PMI rose to 63.4 in July, breaking the record of the PMI dataset stretching back 14 years. Increasing input and energy prices in 2H21 put a cap on the rapid growth in the industry. Nonetheless, the U.S. Manufacturing PMI data closed the year once again at a high level with 57.7. In the Eurozone, the industrial PMI data reached its 24-year-high with 63.4 points in June. The industrial sec- tor in the Eurozone enjoyed accelerated growth thanks to the recovery in domestic demand and exports, however, it started to be adversely affected by high energy prices as it edged towards the final months of the year. The Manufac- turing PMI completed 2021 at 58. China’s zero-Covid policy and the resulting periodic lock- downs limited growth. China also started to implement carbon emission limits in 2H21 and either shut down or restricted the operations of industrial facilities that exce- eded those limits, which led to a loss of momentum in industrial output. Accordingly, the Chinese PMI followed a downward trend throughout 2021 and completed the year at 50.9. Japan’s industry, on the other hand, remained in the growth zone throughout the year, and its Manufacturing PMI was at its highest in recent years. The global manufacturing industry grew by 9.4 percent in 2021. The global manufacturing industry production, which ex- perienced a sharp contraction of 4.2 percent due to the pandemic in 2020, entered 2021 with a strong recovery. In Q1 and Q2, the positive base effect resulted in 11.9 per- cent and 17.8 percent growth, respectively. The positive base effect diminished in Q3 and disappeared in Q4. Thus, the global manufacturing industry production grew by 9.4 percent in 2021, after a 4.2 percent contraction in 2020. The global manufacturing industry’s growth slowed down to 5.8 percent in 3Q21, as the pandemic forced the Chinese administration and Asian countries to implement heavy lockdown restrictions. And in Q4, high input, commodity, and energy prices and the new COVID variant capped the global manufacturing industry’s growth at 3.3 percent. An analysis of the developments regarding world ma- nufacturing industry in 2021 by country groups points to widespread growth. The manufacturing industry in deve- loped countries displayed a growth trend in all four quar- ters of the year and the output rose by 7.3 percent in 2021. Looking at emerging economies in 2021, China's manu- facturing industry production lost momentum after the 36.1 percent expansion in Q1 and stood at a year-round 12.3 percent. WORLD MANUFACTURING OUTPUT, GROWTH (%) Source: UNIDO, World Manufacturing Production, Quarterly Reports. 201920202021 2.2 1.5 1.1 1.2 -6.6 -11.1 -1.3 1.9 11.9 17.8 5.8 3.3 -15 0 -10 5 -5 10 15 20 Q1Q1Q1Q2Q2Q2Q3Q3Q3Q4Q4Q4 Source: S&P Global. Note: Quarterly and annual figures are period averages. MANUFACTURING PMI (PURCHASING MANAGERS' INDEX) PeriodUSAEurozoneChinaJapan 201855.554.850.753.1 201951.847.450.549.3 2020 April 36.133.449.441.9 2020 Q2 41.940.150.440.1 2020 Q3 52.452.453.046.7 2020 Q4 55.754.653.849.3 2021 June62.163.451.352.4 2021 December57.758.050.954.3OCTOBER 2022 17 Manufacturing industry production in developing count- ries excluding China recovered by 29.4 percent in Q2 thanks to the favorable base effect. Growth lost momen- tum in 2H21 and dropped to 4.3 percent in Q4. Manufacturing industry production grew by 10 percent in 2021. Thus, a growth exceeding the contraction level of the previous year was achieved. Input and output prices in the industry remained high throughout the year. Starting from 2H20, the prices of the inputs used in the industry and the industrial products started to climb, wel- coming 2021 with an upward trend. Throughout 2021, prices continued to increase and remained high. As a result of the vaccines’ being administered in early 2021 and the improvement in demand, the industrial pro- duction regained its growth trajectory and the demand for inputs rose, especially in H2. In the industry, orders were backdated due to concerns about supply, and the first input price peak of the year was reached at the end of May. The prices of industrial products also followed suit with a significant jump. The pandemic and lockdowns in China and some other Asian countries during the summer months created an expectation of a slowdown in demand, and the upward trend in input and output prices lost some momentum in this period. Towards year-end, however, demand ex- pectations improved, so the input and output prices rose again, reaching their 2021 peak in October. The increase in energy prices played a pivotal role in this peak. Global industrial export prices rose signi- ficantly. The export prices of global industrial goods, which drop- ped due to the pandemic in 2020 and hit their lowest level in April, started to normalize as of the summer months and entered 2021 with an increasing trend. Throughout 2021, industrial export prices followed a per- sistently upward trajectory. Export prices jumped due to the year-round increases in input prices, especially the rise in energy prices and production costs in H2. Disrup- tions in global supply chains, delays in supply and produ- ction, high freight and logistics costs also caused prices to go up. Source: World Trade Organization. Source: JP Morgan. GLOBAL INDUSTRIAL GOODS EXPORT PRICE INDEX (JANUARY 2005 = 100) 2018 DECEMBER 104.6 2020 DECEMBER 107.0 2021 DECEMBER 114.7 2019 DECEMBER 102.3 Source: UNIDO, World Manufacturing Production, Quarterly Reports. MANUFACTURING GROWTH BY COUNTRY GROUPS (%) Annual Change GLOBAL MANUFACTURING PMI: INPUT AND OUTPUT PRICES SUB-INDICES Period Developing Countries (Excl. China) China Developed Countries World 2021 Q1 3.236.12.211.9 2021 Q229.410.919.717.8 2021 Q37.05.06.05.8 2021 Q4 4.33.13.23.3 2021 10.012.37.39.4 40 50 60 70 80 2018 Input Prices IndexOutput Prices Index 201920202021 47.4 74.4 63.7 46.818 OCTOBER 2022 In 2021, the manufacturing capacity utili- zation rose by 4.7 points. With the rising growth momentum in industrial produ- ction in 2021, the average capacity utilization rate in the manufacturing industry increased by 4.7 points from 71.9 percent to 76.6 percent. In many sectors, this rate was above 76.6 percent. Capacity utilization rates were rea- lized above the average, especially in the industrial su- b-sectors that saw higher export growth. The manufacturing industry’s capacity utilization rate inc- reased gradually in 2021. The rate, which was 75.0 per- cent in Q1, rose to 75.9 percent in Q2. In 2H21, industrial production and the capacity utilization rate continued to increase as foreign demand picked up momentum and Türkiye’s economy grew by 11.4 percent in 2021. Türkiye’s economy reached its 55-year-high growth per- formance with 11.4 percent in 2021. All the four quarters saw high growth rates, primarily due to the increase in foreign demand. Exports, which gained momentum with the change in global supply chains, sharp increase in industrial produ- ction and accelerating investments further drove growth. Following the successful national vaccination campaign, the restrictions on economic and social activities were gradually lifted, and accordingly, the expanding domestic demand supported economic growth. In 2021, household spending grew by 15.3 percent, pub- lic spending by 2.6 percent and gross fixed capital in- vestments by 7.4 percent. However, the contraction in construction investments and other assets limited this growth, and machinery and equipment investments, whi- ch are much more closely related to the industrial sector, showed a strong increase of 21.8 percent. Exports of go- ods and services furthered economic growth significantly with a 24.9 percent expansion, while imports of goods and services recorded a much more moderate increase with 2.4 percent. All these figures indicate that growth in 2021 was driven by industrial production and exports. In 2021, industry recorded a 17 percent growth. The industrial sector achieved growth of 17 percent in 2021, thus breaking away from the overall economy. With a soaring performance in 2021, the industry also made the highest contribution to economic growth. The post-pandemic change in global supply chains, supp- ly security concerns and nearshoring tendencies gained momentum in 2021. As an extension of these trends, the- re was a high demand for Türkiye’s industrial products during the year. As the main export markets recovered rapidly, demand for industrial products rose. The key driver behind the high increase in exports was the additional demand for supply that emerged because of the fact that Türkiye’s industry was selected as an important alternative manu- facturer for buyers around the world. ECONOMIC AND INDUSTRIAL GROWTH (%) Source: TurkStat. 20.0 15.0 10.0 5.0 0.0 -5.0 Industrial GrowthGDP Growth 201920202021 0.8 1.9 11.4 -0.6 3.3 17.0 80 78 76 74 72 70 CAPACITY UTILIZATION RATES IN MANUFACTURING (%) Source: The Central Bank of the Republic of Türkiye. 20142015201620172018201920202021 75.0 76.8 77.4 78.5 76.8 75.9 71.9 76.6OCTOBER 2022 19 businesses opened back up. While the rate was 77.3 per- cent in Q3, it increased to 78.3 percent in Q4. Industrial employment reached a historic high. In 2021, the average annual employment in the industry increased by 661,000 people to hit a historic high of 6.14 million people. The share of industrial employment in total employment enjoyed a 0.8-point increase, climbing to 21.3 percent. Since the termination of employment contracts was banned for most of 2020, the loss of employment in the industry was limited. In addition, support was provided towards protecting employment, particularly the short- term working allowance. In line with economic recovery, the ban on the termination of employment contracts and the pandemic support pro- vided for employment were gradually abolished in 2021. The high rate of growth achieved in the industry in 2021 also led to additional employment. Employment increased significantly with the support of exports and capacity ex- pansion efforts. Additional demand for supply from Türkiye supported industrial exports. In 2021, exports of industrial goods increased by 33.2 per- cent, reaching a historic high of $217.9 billion. There were two key factors at play in this increase in the exports of industrial goods in 2021. The first was the rapid recovery enjoyed by our main export markets and the growth in glo- bal goods trade. High economic growth in these markets in 2021 largely compensated for the pandemic-related losses and gave a strong impetus to import-side demand. Espe- cially the imports from the EU and the U.S. saw significant increases. The second and more key factor was the demand for ad- ditional supply resulting from the change in global supply chains. Following the pandemic, buyers resorted to redu- cing their high import dependency on Asia to ensure supp- ly security. While supply sources were diversified, nears- horing became a critical agenda item. Because high freight prices drove the cost of importing from distant suppliers up. The fact that production and suppliers’ delivery times were prolonged made nearshoring more important. Against a backdrop of these trends, Türkiye, boasting a strong industrial infrastructure, production, and logistics capacity, was in the receiving end of a large demand for additional supply from many new countries and buyers. Almost all industrial sectors benefited from this develop- ment. Manufacturing industry’s share in national income exceeded 22 percent. In 2021, the share of the manufacturing industry in GDP rose to 22.2 percent at current prices, following a strong YoY increase of 3.1 points. The manufacturing industry per- formed well in 2021. Especially the high demand in exports and the recovery in domestic demand generated a high-le- vel increase in production. The industry, particularly the manufacturing sector, significantly outgrew the economy. Thus, the manufacturing industry’s share in GDP has reac- hed its highest level since 1998. INDUSTRIAL EXPORTS (ACCORDING TO GTS, $ BILLION) Source: TurkStat. 2018201920202021 171.2 175.1 163.5 217.9 Source: TurkStat. Industrial Employment (Share as %, Right-hand Side) Industrial Employment (Thousands, Left-hand Side) 22 21 20 19 18 17 16 15 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 20142015201620172018201920202021 5,3165,3325,2965,3835,6745,5615,4976,143 20.5 20.0 19.5 19.1 19.7 19.8 20.5 21.3 CHANGES IN INDUSTRIAL EMPLOYMENTNext >