Turkey: Economy grows at fastest rate in three years in the first quarter
Economic growth soared in the opening quarter of the year, with GDP expanding 7.3% in annual terms—the fastest pace in three years. The print came in above the fourth quarter’s 5.8% expansion and beat market expectations of a softer increase.
On the domestic front, household expenditure grew at a slightly softer pace in the quarter (Q1: +7.4% yoy; Q4: +8.2% yoy) as Covid-19 containment measures, such as a nighttime curfew and weekend lockdown, limited consumers’ ability to spend. Consumption of services remained weak as a consequence, and private expenditure was primarily driven by goods demand. Fixed investment growth accelerated to 11.4% in the quarter from 10.3% in Q4 2020. Public consumption, meanwhile, expanded at a markedly softer pace of 1.3% in Q1, following the 6.6% expansion in the fourth quarter.
On the external front, exports of goods and services increased 3.3% in annual terms in the first quarter, after flatlining in Q4. Easing restrictions in trading partners’ economies and lira weakness likely supported foreign demand. Imports of goods and services, however, swung from a 2.5% expansion in the fourth quarter to a 1.1% contraction in the first quarter.
Lastly, on a seasonally-adjusted quarter-on-quarter basis, the economy expanded 1.7% in the first quarter, matching the prior quarter’s result.
Given the strong reading in the first quarter and the economy’s relative resilience to lockdown measures, GDP is expected to grow firmly this year. Moreover, as restrictions are further eased at the end of the second quarter, activity is set to receive a boost over summer, particularly if the tourism sector recovers. Nevertheless, the balance of risks remains tilted to the downside due to sticky, elevated inflation, currency weakness, uncertainty regarding the evolution of the pandemic and less predictable policy making.
Commenting on the outlook for the second quarter, Muhammet Mercan, chief Turkey economist at ING, added:
“Activity is expected to lose momentum on a sequential basis given the impact of high borrowing costs, recent FX volatility and pandemic-control restrictions extending into 2Q21, despite a further rebound in goods and services exports given strong external demand, with global activity picking up and a recovery in tourism.”