Turkey: Economy continues to expand at full speed in Q1, although a slowdown is likely going forward
June 11, 2018
According to data released by Turkstat on 11 June, the economy grew a significant 7.4% in the first quarter in annual terms, handsomely beating market expectations and marking a slight uptick from Q4’s 7.3% reading. The economy thus continued to defy expectations of a slowdown, powered by the effects on ongoing government stimulus measures.
The domestic sector drove growth in the quarter, with private consumption expanding 11.0%—up from the prior quarter’s 6.6%—thanks to higher wages, lower unemployment and good access to credit. Fixed investment expanded a robust 9.7% (Q4: +6.0% year-on-year), thanks to strong investment in construction and machinery and equipment. Firms continued to benefit from government measures to boost lending through the Credit Guarantee Fund, with Central Bank data showing private-sector loan growth averaging around 20% in Q1. Government consumption, meanwhile, rose 3.4% in the first quarter (Q4: +7.4% yoy).
In contrast, the external sector weakened considerably in the first quarter. Exports of goods and services rose a mere 0.5% year-on-year (Q4: +9.3% yoy) while imports jumped 15.6% (Q4: 22.7% yoy) on strong domestic economic activity. As a result, the external sector subtracted 3.6 percentage points from growth, up from Q4’s 3.1 percentage-point subtraction.
Looking ahead, the economy will be unable to sustain such a strong pace of growth, which is significantly above potential. Available signs point to a considerable slowdown in Q2. Monetary conditions have tightened considerably as the Central Bank fights to control inflation, which will likely feed through to credit growth. In addition, business and consumer confidence declined in May, while the PMI for the manufacturing sector—which has been a major beneficiary of government stimulus measures and a driver of growth in recent quarters—has crashed into contractionary territory.