Turkish growth slowed less than predicted in the second quarter, though activity is set to be subdued for the rest of the year as officials seek to put the economy on a more sustainable footing by raising interest rates.
(Bloomberg) — Turkish growth slowed less than predicted in the second quarter, though activity is set to be subdued for the rest of the year as officials seek to put the economy on a more sustainable footing by raising interest rates.
Gross domestic product expanded an annual 3.8% from a downwardly revised 3.9% in the first three months of the year, according to data published on Thursday. Estimates in a Bloomberg survey of analysts ranged widely, with the median forecast at 3.1%.
Consumer demand and government spending ahead of May’s elections were major contributors to growth during the three-month period, the data showed.
Below are some of the highlights from the GDP report:
- Quarter-on-quarter growth quickened sharply to 3.5% in seasonally and working-day adjusted terms.
- Government spending rose by 5.3% in annual terms, down from 6.1% in the Jan.-March period.
- Imports were up 20.3% from a year earlier while exports were down by 9%.
- Industrial sector shrank 2.6% on an annual basis; agricultural output rose 1.2%.
Post-Election Policies
Leading indicators, including retail sales, had suggested consumption remained strong in the second quarter thanks to heavy pre-election spending by President Recep Tayyip Erdogan.
Erdogan, who won reelection to take his rule into a third decade, has since signaled a shift away from unorthodox policies — including ultra-low borrowing costs — that he championed in recent years but which caused foreign investors to flee the $900 billion economy.
The president’s new economic team, led by Finance Minister Mehmet Simsek and central bank Governor Hafize Gaye Erkan, is trying to slow inflation of almost 50%, which has inflicted a severe cost-of-living crisis on Turks.
Following Thursday’s report, Simsek said he wants to put growth on a “balanced and sustainable” path by reducing Turkey’s foreign-trade gap.
Still, Erdogan may encourage them to strike a balance and boost growth ahead of local elections in March. The president wants to recapture the mayor’s seat in Istanbul after suffering a stinging defeat there four years ago.
What Bloomberg Economics Says…
“Turkey’s 2Q GDP print carries signs of things to come: slower growth supported by domestic consumption – even as high price gains squeeze consumer spending power. It also points to a likely risk of higher fiscal stimulus before March’s local elections – countering the impact coming from tighter monetary policy.”
— Selva Bahar Baziki, economist. Click here to read more.
Growth Outlook
Goldman Sachs Group Inc. forecasts that Turkey will enter a recession in the second half of 2023.
“Policy, both monetary and fiscal, has shifted significantly tighter,” Goldman analysts including Clemens Grafe said in a note last week.
That shift gained impetus last week when the central bank hiked interest rates by 750 basis points, far more than expected, causing the Turkish bonds and the lira to rally afterwards.
Supersized Rate Hike Spurs Massive Rally Across Turkish Markets
The “strong course of domestic demand is one of the main drivers in the underlying trend of inflation,” the bank said in a statement after the rate increase.
“We expect the monetary tightening to limit the domestic-demand growth,” Deniz Cicek, an economist from QNB Finansbank, said before the data release. “Depending on the global outlook, we also see export growth as limited.”
–With assistance from Harumi Ichikura.
(Updates with more details from the GDP report from the third paragraph, adds economist comment.)
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