Turkey Rebounds From Virus Contraction With Record Growth

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Turkey’s economy rebounded sharply in the second quarter to grow at record levels after contracting a year earlier at the height of the pandemic.

Gross domestic product rose an annual 21.7%, the most on record in data that goes back to 1999. The median of 19 forecasts in a Bloomberg survey was for 21% growth. The seasonally and working day-adjusted figures showed an expansion of 0.9% in the last quarter from the previous three months.

The lira extended gains after the data was released, rising as much as 0.3% against the dollar to its strongest level since June 11. 

The $765 billion economy outperformed most Group of 20 nations in the second quarter after shrinking 10.4% a year ago as Covid struck. Last year, Turkey contained the impact on growth with a combination of interest-rate cuts and a government-sponsored credit stimulus that bolstered consumption but came at the cost of lira depreciation and runaway inflation.

Below are some more highlights from the GDP report released by the state statistics institute in Ankara on Monday:

• Household consumption -- estimated to account for about two-thirds of the economy -- continues to be one of the main drivers of growth. It jumped 22.9% from a year earlier
• The biggest contribution to growth came from services and the manufacturing sector, which rose 45.8% and 43.4% in the second quarter on an annual basis, respectively
• The size of the economy grew to $765.1 billion in the second quarter from $741.1 billion in current prices last year.
• Exports jumped 59.9% on an annual basis. Imports rose 19.2%
• Gross fixed capital formation, a measure of investment by businesses, rose an annual 20.3%
• Government spending rose 4.2% after a 0.7% increase in the previous quarter

Leading indicators show activity remains strong in the third quarter, with the official economic confidence index above 100, indicating an optimistic outlook. Industrial production rose on an annual basis for a 13th month in June.

Seda Guler Mert, chief economist for Turkey at Garanti BBVA, said the firm’s data show consumption staying “relatively strong but investment demand is slowing down, which finally concludes an ongoing but very slow adjustment for domestic demand.” 

“Given the recent momentum and a better global growth outlook, risks remain on the upside for 2021 GDP growth even for our above-consensus forecast of 9%,” she said in an email. 

Turkey’s “problem is not growth but inflation,” said Alvaro Ortiz, the head of Big Data Analysis at BBVA Research. 

The government’s growth push in 2020 saw the currency weaken by 20%, keeping consumer inflation in double digits. The biggest challenge facing central bank Governor Sahap Kavcioglu is trying to restore price stability amid President Recep Tayyip Erdogan’s calls for lower interest rates.

The central bank held the key rate at 19% for a fifth month as inflation accelerated to 18.95% in July, wiping off much of the real yield. The lira weakened more than 13% against the dollar since the abrupt appointment of Kavcioglu in March.

©2021 Bloomberg L.P.