Turkey’s economy grew faster than expected last quarter as the government ramped up spending ahead of elections, though two devastating earthquakes this month have clouded the outlook.
(Bloomberg) —
Turkey’s economy grew faster than expected last quarter as the government ramped up spending ahead of elections, though two devastating earthquakes this month have clouded the outlook.
Gross domestic product rose 3.5% in the October-December period from a year earlier, above the median estimate in a Bloomberg survey of analysts. Growth for the whole year was 5.6%, state statistics agency TurkStat data showed on Tuesday.
Consumption, alongside government expenditure, were the biggest contributors to a spurt in activity.
Household spending, which is estimated to account for more than half the economy, grew an annual 16.1% during the final quarter of the year, though there was some loss of momentum from the previous three-month period. Government spending rose 9%, the fastest pace of growth since presidential elections in 2018.
What Bloomberg Economics Says…
“Our annual growth rate forecast is at 2.9% for 2023, up from our earlier estimate of 2.6% following the surprise to the upside in 4Q22. That is still markedly lower than the economy’s long-term average of 4.6%. An expedited rebuilding activity in disaster areas in the lead up to the vote could pull up some of the output to the first half of the year, and presents an upside risk to the outlook.”
— Selva Bahar Baziki, economist. Click here to read more.
Domestic and external demand for Turkish goods appeared to be strong in the first month of the year but the impact from Feb. 6 earthquakes on manufacturing is too difficult to quantify at the moment, said Haluk Burumcekci, an Istanbul-based economist.
“Accordingly, risks to our 2023 growth estimates of 3% are on the downside,” he said in an emailed report after the GDP data.
The figures are politically sensitive in Turkey as President Recep Tayyip Erdogan prioritized economic growth ahead of general elections expected in May. Following the disaster, he’s stepping up post-quake rebuilding efforts to shore up his party’s popularity.
The World Bank on Monday estimated the earthquakes will inflict a direct cost to Turkey’s economy of as much as $34.2 billion, or about 4% of 2021 GDP, according to a preliminary assessment. The lender also said it would lower its 2023 growth forecast by about half a percentage point from its initial 3.5%-4% estimate.
To mitigate the quakes’ impact on growth, Turkey’s central bank reduced its key interest rate to 8.5% this month. 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.
Although Erdogan’s strategy was based on a cheap currency and higher exports, shipments abroad declined 3.3% in the last quarter while imports jumped 10.2%.
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.
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%.
Turkey will publish February inflation data on March 3. The central bank’s next rate-setting meeting is scheduled for March 23.
(An earlier version of this story was corrected to change time of central bank meeting.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.