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Turkey GDP Q4 2021

Turkey: Economic growth improves in the fourth quarter

GDP growth sped up to 9.1% year-on-year in the final quarter of 2021, from 7.5% in the third quarter. Consequently, the Turkish economy expanded 11.0% in the year as a whole in 2021 over the prior year, marking the strongest pace of growth in a decade.

Private consumption growth sped up to 21.4% year-on-year in Q4 from a 9.1% expansion in Q3. Household spending was supported by a drop in the unemployment rate (Q4: xx%; Q3: xx%) and stronger credit growth, amid the government’s push for supportive financial conditions. Spending has been seemingly undeterred by rising price pressures in the period. Government consumption, meanwhile, dropped 1.9% in Q4 (Q3: +7.9% yoy). In addition, fixed investment contracted at a milder annual rate of 0.8% in Q4, from the 1.9% decrease recorded in the previous quarter.

On the external front, exports of goods and services growth softened to 20.7% in Q4 (Q3: +25.5% yoy). This was aided by continued strong growth in tourist arrivals. Meanwhile, imports of goods and services bounced back, growing 2.6% in Q4 (Q3: -8.9% yoy).

On a seasonally-adjusted quarter-on-quarter basis, economic growth waned notably to 1.5% in Q4, following the previous quarter’s 2.8% growth. Q4’s reading was the weakest in a year.

Turning to the first quarter of 2022, the lira remains depressed and consumer prices have risen steeply in the first two months of the year. This will likely impede private consumption, as purchasing power will have taken a hit. Moreover, the outlook turned gloomier with the invasion of Ukraine by Russia, which sent commodity prices spiraling. Consequently, gas and oil prices are set to increase further and fuel inflation going forward, continually denting private consumption. That said, economic conditions should largely normalize outside of the military conflict in Ukraine, and that should support domestic and foreign demand. Moreover, still-robust business confidence and high capacity utilization rates bode well for capital outlays. However, the balance of risks is clearly skewed to the downside amid elevated inflation, continued pressure on the currency and unorthodox monetary and economic policy. The private sector’s debt overhang, which is largely denominated in euros and U.S. dollars, adds a further downside risk, and currency volatility has dented consumer sentiment.

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