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Turkey GDP Q1 2021

Turkey: GDP growth records quickest expansion since Q1 2018 in Q1 2022

GDP growth cooled to 7.3% year on year in the first quarter, from 9.1% in the fourth quarter of last year. The headline result came in slightly above market analysts’ expectations of a 7.2% expansion.

The moderating headline print came on the back of softer household consumption growth, which eased from 21.4% year on year in the fourth quarter of last year to 19.5% in the first quarter of 2022. Inflation more than doubled in the period and this, coupled with deeply pessimistic consumer sentiment, weighed on household spending. The large increase in the minimum wage and marked private-sector wage increases supported spending, however. Furthermore, government consumption swung from a 1.9% contraction in Q4 2021 to a 0.9% expansion in January–March, likely driven in part by the wage increases. Fixed investment also rebounded, growing 1.1% in the first quarter, after contracting 0.8% in the final quarter of last year.

Turning to the external sector, exports of goods and services growth slowed to 16.8% year on year in the first quarter from 20.7% in Q4 2021. While this was a quicker deceleration in growth than that of the import of goods and services (Q1 2022: +2.3% yoy; Q4 2021: +2.6% yoy), the external sector contributed 3.8 percentage points to the headline reading.

On a seasonally-adjusted quarter-on-quarter basis, economic growth eased to 1.2% in the first quarter from 1.5% in the fourth quarter of last year. This signaled a loss of momentum at the outset of the year, with activity weighed down by red-hot inflation.

Looking ahead, the balance of risks is clearly skewed to the downside. The lira has remained under pressure due to a hugely negative real interest rate, at a time when the U.S. Fed has begun to normalize monetary policy and the ECB is gearing up to do the same. Already elevated inflation has been stoked even higher by the fallout from the Russian invasion of Ukraine, which has sent commodity prices spiraling. Household spending will be impeded by evaporating disposable incomes; inflation is vastly outpacing the wage increases imposed at the start of the year. Moreover, the private sector’s debt overhang is mostly denominated in foreign currencies, posing macroeconomic stability risks. That said, still-robust business confidence and high capacity-utilization rates bode well for capital outlays. The removal of Covid-19 restrictions should support private consumption and the tourism sector.

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