Turkey’s economy grew faster than expected in the last quarter of 2022, driven by a surge in government and household spending, although the outlook has clouded after devastating earthquakes this month.
(Bloomberg) —
Turkey’s economy grew faster than expected in the last quarter of 2022, driven by a surge in government and household spending, although the outlook has clouded after devastating earthquakes this month.
Gross domestic product rose 3.5% in the October-December period from a year earlier, state statistics agency TurkStat data showed on Tuesday. The median estimate was a 2.9% expansion in a Bloomberg survey. Growth for the whole of the year was 5.6%.
The figures are politically-sensitive in Turkey and President Recep Tayyip Erdogan has prioritized economic growth ahead of general elections expected in May. He’s stepping up post-quake rebuilding efforts to shore up his party’s popularity ahead of a hit to the economy.
The World Bank said Monday the earthquakes are estimated to have a direct cost of as much as $34.2 billion, or about 4% of 2021 gross domestic product to Turkey’s economy, according to a preliminary assessment. The lender also said it would lower its 2023 GDP growth forecast by about half a percentage point from its initial 3.5%-4% estimate.
The central bank lowered its key interest rate to 8.5% this month to mitigate the quakes’ impact on growth. The easing cycle that began last year saw rates fall by a cumulative 550 basis points, in line with Erdogan’s call for lower borrowing costs.
The president’s emphasis on growth and push for cheap lending to smaller and export-oriented firms took a toll on the currency and consumer prices.
Inflation soared to the highest level since 1998 to above 85% in October before slowing to around 60% last month. The lira lost about 30% of its value against the dollar last year.
Key insights
- Household consumption — estimated to account for more than half the economy — grew by 16.1% in the last quarter year-on-year
- Exports declined by 3.3% in the same period and imports increased by 10.2%
- Government spending on consumption rose by 9%
- Quarterly growth in the economy when adjusted for calendar and seasonal impact was 0.9%, compared with the median estimate of 0.7%
Prospects for 2023
The European Bank for Reconstruction and Development said this month that uncertainty over the elections and external financing requirements were “vulnerabilities,” that led it to revise down its GDP growth estimate for 2023 to 3% from 3.5%.
What Bloomberg Economics Says…
“Looking ahead, we expect election and earthquake related government spending to partially offset the hit to the economy. That places our estimate for 2023 growth rate at 2.6%, still well below the government’s target of 5%.”
— Selva Bahar Baziki, economist. Click here to read more.
Turkey will publish February inflation data on March 3. The central bank’s next rate-setting meeting is scheduled for March 17.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.