Monday 10, September 2018 by Bloomberg

Turkey's fast-paced GDP growth shows signs of a slowdown ahead


The currency rout came with a price on Turkey’s real economy, leading to a spike in the cost of borrowing for corporates and consumers alike as well as drop-in confidence.

After one of the best growth performances among peers in the second quarter, Turkey’s economy is showing signs of a slowdown that some investors say will morph into a technical recession later in the year.

Gross domestic output rose 5.2 per cent during the three months through June from a year earlier, in line with the median estimate of 5.3 per cent in a Bloomberg survey. While that keeps Turkey’s place among the world’s fastest-growing nations, a deeper dive into the data shows consumers and investors starting to hit the brakes, and government spending and exporters preventing a more rapid slowdown.

The lira’s recent depreciation, though it benefits exporters, will force the government to reduce spending and the central bank to raise borrowing costs to stabilise financial markets, said Inan Demir, an economist at Nomura International in London who had the most accurate prediction in the Bloomberg survey.

“This is just a prelude to a deeper slowdown that will take hold in the second half,” Demir said. “I expect two consecutive quarters of contraction in the economy: a technical recession.”

The lira reaction to the news was muted; it was trading 0.8 per cent lower at 6.5 per dollar at 11:00 a.m. in Istanbul, bringing the year’s losses to around 41 per cent.

The latest run on the lira began with the eruption of a row between Turkey and the US over an American pastor held in Turkey for almost two years on espionage and terrorism-related charges. Turkish policy makers led by President Recep Tayyip Erdogan have accused the US of waging an economic war and using the currency as its main tool of attack.

Deterioration in the economic outlook has resulted in downward revisions to growth estimates by banks and credit rating agency Fitch.

Private consumption, which is estimated to make up nearly two-thirds of the economy, grew 6.3 per cent on an annual basis during the first three months of the year, slowing from a revised 9.3 per cent in the first quarter Government spending on consumption rose 7.2 per cent from a revised 4.9 per cent in the previous quarter Spending on investments rose 3.9 per cent from a revised 7.9 per cent with construction rising 6.6 per cent and spending on machinery and other equipment inching up 0.6 per cent Exports rose 4.5 per cent from revised 0.7 per cent while imports increased 0.3 per cent Agriculture contracted 1.5 per cent, compared with a 6.1 per cent expansion; industries rose 4.3 per cent, down from 8.1 per cent Expansion in services was led by banks and insurance companies whose economic output rose 12.1 per cent, up from three per cent

Features & Analyses

Economics Adapting to a new era

  Abdullah Al-Fozan, Chairman of KPMG MESA and KPMG Saudi Arabia, provides an exclusive commentary on the Kingdom’s business… read more