Turkey: Economy grows at softer annual pace in the fourth quarter
GDP expanded 5.9% year-on-year in the fourth quarter of 2020, softening from the third quarter’s 6.3% rise and coming in under market expectations. The reading was largely driven by slower growth in domestic demand and a persistent drag from the external sector. For the year as a whole, GDP rose 1.8% (2019: +0.9%). The Turkish economy was therefore one of the few in the world to achieve growth in 2020, despite pandemic-induced restrictions.
On the domestic front, household expenditure was the main driver of growth in the fourth quarter, thanks to a robust credit extension fomented by the government. That said, private consumption slowed amid the tightening of Covid-19 restrictions, growing 8.2% year-on-year in Q4 (Q3: +8.5% yoy). Moreover, capital spending growth slowed markedly to 10.3% in the quarter (Q3: +21.9% yoy). Meanwhile, public expenditure rose 6.6% in annual terms in Q4, after increasing 0.8% in Q3.
On the external front, exports of goods and services stagnated after collapsing in the previous quarter (Q4: +0.0% yoy; Q3: -22.1% yoy). Meanwhile, imports rose 2.5% annually in the fourth quarter (Q3: +16.4% yoy).
On a seasonally-adjusted quarter-on-quarter basis, economic growth slowed to 1.7% in Q4 from the previous quarter’s 15.9%.
Looking ahead, economic growth is expected to firm this year. Domestic and foreign demand are likely to strengthen as the country continues to ease restrictions and the global rollout of vaccines pushes forward, allowing more economies to reopen. Nevertheless, lira weakness and elevated inflation, coupled with uncertainty regarding the trajectory of the pandemic, will keep the outlook clouded.