Turkey: Economic growth leaps in Q1 as growth-inducing policies bear fruit
June 12, 2017
The economy surprised on the upside for a second consecutive quarter in Q1, growing 5.0% from the same quarter of the previous year. The print came in well above both market expectations of a milder 3.5% expansion and Q4’s already-robust 3.8% expansion. While growth was spearheaded by the domestic sector, which benefited from the government’s counter-cyclical measures, a well-performing external sector also contributed strongly to growth. Sequential growth on a seasonally and working-day adjusted basis was somewhat weaker at 1.4%, which followed Q4’s 3.4% increase.
The domestic sector was the largest contributor to growth in the first quarter. Private spending growth, albeit slightly below Q4’s figure, was still robust at 5.1% (Q4: +5.7% year-on-year). Turkish households benefited from the government’s measures to shore up growth, which included access to cheaper loans, tax discounts and nationwide campaigns on residential investments. In line with higher public outlays, government consumption growth soared to 9.4% in the first quarter, well above the previous quarter’s 0.8% increase. Fixed investment remained relatively depressed at a 2.2% expansion (Q4: +2.0% yoy) as political noise reached fever pitch ahead of April’s referendum, likely deterring some investors and causing others to delay their plans.
The external sector’s net contribution to growth was the largest in nearly three years at plus 2.2 percentage points. Exports rose 10.6% over the same quarter of last year, a marked improvement over the 2.3% expansion recorded in the last quarter of 2016. Growth was caused by the improvement in the country’s price competitiveness—linked to the weakened lira—and improving demand from the European Union. Conversely, imports were up a mere 0.8% from the same quarter of the previous year (Q4: +3.3% yoy).
The strength seen in high frequency data and the government’s loosened fiscal stance are likely to keep growth at resilient levels heading into Q2. In addition, the return to growth of tourism will ensure a more supportive external sector in the quarters to come. Nonetheless, fixed investment growth will continue to perform poorly due to lingering doubts regarding the government’s ability to sustain growth-inducing policies in the medium to long run without the risk of the economy overheating.
Author: David Ampudia, Economist