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Turkey GDP Q3 2023

Turkey: GDP growth plummets in the third quarter

GDP growth waned to 0.3% on a seasonally adjusted quarter-on-quarter basis in the third quarter from 3.3% in Q2. The reading disappointed markets, which were expecting a softer deceleration. On an annual basis, economic growth improved to 5.9% in Q3, compared to the previous period’s 3.9% expansion.

Q3’s sharp slowdown came amid the country’s policy shift to economic orthodoxy after May’s general election. The Central Bank doubled the key policy rate from 15.00% to 30.00% during the quarter. In addition, it allowed the lira to depreciate markedly, which reignited price pressures. Against this backdrop, private consumption deteriorated sharply, contracting by a seasonally adjusted 1.7% quarter on quarter in Q3 from 4.7% in Q2. Moreover, public consumption growth moderated to 1.8% in Q3 (Q2: +2.8% s.a. qoq), following generous pre-election spending in Q2. That said, fixed investment growth picked up to 5.4% in Q3 from the 3.1% expansion logged in the prior quarter.

On the external front, exports of goods and services bounced back, growing 5.4% in Q3 (Q2: -1.3% s.a. qoq). Conversely, imports of goods and services growth moderated to 2.3% in Q3 (Q2: +5.2% s.a. qoq), a further testament to softening domestic demand.

Our panelists see the economy contracting in sequential terms in Q4, as it increasingly feels the effects of the ongoing hiking cycle; firms and households remained markedly pessimistic in October–November.

Turning to 2024, GDP growth is seen slowing relative to this year’s projected expansion. Domestic demand is seen losing significant steam as monetary tightening fully filters through the economy. Moreover, inflation is set to remain stubbornly high, and the unemployment rate is projected to increase. More positively, exports are seen rebounding amid steadying economic activity in Europe. The intensification of regional geopolitical tensions is a downside risk.

Analysts at Fitch Solutions commented:

“Our view remains that an unwinding of monetary and fiscal stimulus in the post-election period will trigger a recession, albeit one which is necessary to reduce the very high inflation which has plagued the economy.

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