UPDATE 2-Turkish growth outlook worsens as industrial output falls more than expected in June

(Adds analyst comment, PMI)

ANKARA, Aug 16 (Reuters) - Turkish industrial production fell for the tenth consecutive month in June, data showed on Friday, offering few signs of a pick-up in economic growth as domestic demand remains weak after last year’s currency crisis.

Industrial output began to decline after the currency slump which saw the lira lose nearly 30% against the dollar and tipped the economy into recession in the last quarter of 2018 and first quarter of this year. Second quarter GDP figures are released on Sept 2.

Industrial production on a calendar-adjusted basis contracted 3.9% year-on-year in June, the Turkish Statistical Institute said, more than had been expected, and 3% in the second quarter of 2019 as a whole.

In a Reuters poll, the calendar-adjusted industrial output figure had been forecast to fall 1.01% year-on-year. Month-on-month, industrial production was down 3.7% in June on a calendar and seasonally adjusted basis, the statistical institute said.

Industrial production, which remains low due to weak domestic demand, was dragged down further in June by a week-long public holiday at the end of the Muslim fasting month of Ramadan, said Hilmi Yavas, economist at Yatirim Finansman.

“Due to the strength of exports, industrial production was balanced to a certain extent in the first half of the year but we are seeing that foreign demand is not sufficient any more,” he said.

“There is already a significant slowdown in the industry sector abroad and views are increasing that this is slowly starting to affect us,” he added.

The manufacturing industry index fell 4.2% month-on-month, while the mining and quarry sector index rose 2.4%. The recent industrial production data has been volatile and economists tend to look at the wider trend by looking at the average of several months.

Turkey’s PMI index rose to an 11-month high in June due to a smaller slowdown in output and new orders, according to a business survey, which also showed manufacturing activity had contracted for the 15th month in a row.

The contraction in industrial production showed that growth in the second half of the year will be weak, Yavas said, adding that weak domestic demand could improve if banks’ loan volume increases.

“Things depends on whether the monetary transmission mechanism will work,” he said, adding that last month’s sharp interest rate reduction by the Central Bank and falling deposit interest rates support the idea that credit volume will grow.

Reporting by Nevzat Devranoglu and Ali Kucukgocmen Writing by Daren Butler Editing by Dominic Evans and Toby Chopra