Turkey: Economic growth accelerates in the first quarter
GDP growth sped up to 4.0% year on year in the first quarter, from 3.5% in the fourth quarter of last year, exceeding market expectations.
The upturn reflected improvements in private consumption, fixed investment and exports compared to the previous period. Private consumption growth ticked up to 16.2% year on year in Q1 from a 16.1% expansion in Q4. Public consumption growth, meanwhile, moderated to 5.3% in Q1 (Q4 2022: +9.0% yoy). Fixed investment growth picked up to 4.9% in Q1, compared to the 2.6% expansion logged in the previous quarter.
On the external front, exports of goods and services declined at a slower pace of 0.3% in Q1 (Q4 2022: -3.3% yoy). Meanwhile, imports of goods and services growth picked up to 14.4% in Q1 (Q4 2022: +10.2% yoy).
On a seasonally adjusted quarter-on-quarter basis, economic growth lost momentum, cooling to 0.3% in Q1, compared to the previous period’s 0.9% expansion.
The print shows that the economy was resilient in the face of the devastating earthquakes that hit the country in February. Growth drivers were broadly unchanged relative to previous quarters: Domestic demand strengthened during the period, contributing positively to the uptick. On the flip side, net exports dragged down the reading, as imports growth accelerated.
Going forward, annual growth is seen slowing. Stubbornly high inflation and a weaker lira will squeeze purchasing power. Moreover, the global economic slowdown is set to constrain the external sector. Economic policy under a new Erdogan administration is a key factor to watch.
Analysts at the EIU commented on the outlook for economic policy:
“Mr. Erdogan is expected to name a much-changed cabinet in the coming weeks, and the composition of his economic team will be key in reassuring investors. We do not expect a major policy U-turn, such as a sharp rise in the Central Bank policy rate, in the short term. However, we expect a more conservative approach to fiscal policy in an attempt to improve policy credibility with foreign investors, and interest-rate and exchange-rate controls are likely to be loosened”.