Turkey: Domestic demand continues to prop up growth in Q1
June 10, 2016
Turkey’s economy has been resilient in the face of mounting political unrest, rising geopolitical risks, the bloody conflict with Kurdish militants in the southeast of the country and heightened volatility at the start of the year. GDP expanded a strong 4.8% annually in Q1. Although the print represented a deceleration over the astonishing 5.7% growth tallied in Q4, it beat market expectations of a 4.2% rise.
Stellar growth in total consumption was mainly behind Q1’s healthy expansion. Private consumption expanded at the fastest pace in five-and-a-half years (Q4: +5.3% year-on-year; Q1: +7.4% yoy) as households benefited from a 30% increase in the minimum wage, relaxation of some macroprudential policies and a looser monetary policy. A more supportive fiscal stance propelled government spending to levels last seen in 2009 (Q4: +8.1% yoy; Q1: +10.9% yoy). On the other hand, geopolitical threats and political uncertainty hit fixed investment, which contracted 0.1% in Q1 (Q4: +3.5% yoy).
In the external sector, sanctions from Russia and still lackluster global dynamics contained growth in exports of goods and services, which rose 2.4% in Q1 (Q4: +2.1% yoy). On the other hand, import growth jumped to an over-two-year high of 7.5% (Q4: -2.6% yoy) due to robust domestic consumption. As a result, the external sector’s net contribution to overall growth swung from plus 1.3 percentage points in Q4 to minus 1.5 percentage points in Q1.
A quarter-on-quarter analysis corroborates the deceleration suggested by the annual figures. GDP rose 0.8% over the previous quarter in seasonally- and calendar-day adjusted terms. The reading was below the 1.2% increase observed in Q4.
Robust domestic demand will shore up growth this year. However, political uncertainty if the government moves ahead with its plan to establish a presidential system, the ongoing war with Kurdish militants, terrorist attacks in the country and the expected gradual increase in oil prices all have the potential to derail economic growth.