Turkey: GDP growth moderates in Q2
GDP growth ebbed to 3.8% year on year in the second quarter, from 3.9% in the first quarter. The reading came in above market expectations.
Private consumption growth fell to 15.6% in Q2, marking the weakest expansion since Q3 2021 (Q1: +17.3% yoy). Public spending growth moderated to 5.3% in Q2 (Q1: +6.1% yoy). Meanwhile, fixed investment growth sped up to 5.1% in Q2, above the 3.7% increase in the prior quarter. Stronger construction activity following Q1’s devastating earthquakes spearheaded the improvement in investment.
Exports of goods and services plunged at the steepest rate in over two years, contracting 9.0% in the second quarter as the economy faced a bleaker external backdrop (Q1: -2.6% yoy). Conversely, imports of goods and services growth picked up to 20.3% in Q2 (Q1: +14.2% yoy), marking the best reading since Q1 2020 and signaling resilient domestic demand.
On a seasonally adjusted quarter-on-quarter basis, economic activity rebounded, increasing 3.5% in Q2, contrasting the previous quarter’s 0.1% contraction. Q2’s reading marked the best result since Q3 2021 and reflected the recovery from Q1’s earthquakes.
In H2, the economy is seen losing further steam. PMI data for July and August points to weaker industrial activity. Additionally, inflation reversed its downward trend in July, coming in at a four-month high, and is seen increasing further by year-end. Against this backdrop, the Central Bank hiked aggressively in August, which is set to weigh on overall activity during the remainder of the year. Additionally, muted activity around the globe will keep a lid on the external sector. Economic policy under Erdogan’s new Cabinet is a key factor to monitor.
Analysts at the EIU commented on the outlook:
“Real GDP growth may moderate in the remainder of the year as a result of policies adopted since the elections with a view to shoring up public finances and reducing the external deficit. Some taxes and public-sector prices have been increased, the Turkish lira has been allowed to weaken, inflation is being allowed to erode incomes, and interest rates have started to rise.”