Turkey: GDP growth skyrockets in Q3 on soaring domestic demand
December 11, 2017
Accommodative credit conditions, enhanced external competitiveness and a positive base effect fueled economic growth in the third quarter. GDP growth roared by 11.1% from the previous year in Q3, well above market expectations of an 8.5% rise. The Statistical Institute also revised up GDP data for the first half of the year, with Q2 growth upgraded to 5.4% in year-on-year terms from the 5.1% increase previously reported. Despite Q3’s upbeat panorama, all tailwinds to growth peaked in the quarter, which points to softer support from the domestic sector in the final quarter of the year.
The domestic sector was the largest contributor to growth in the third quarter, despite sizeable price pressures. Private consumption growth surged from a 3.1% increase in Q2 to a 11.7% rise in Q3. Households benefited from temporary tax relief on major appliances and furniture throughout the quarter, while the double-digit rate reflected a positive base effect caused by the failed coup d’état in July 2016. Government consumption also performed better in Q3: It swung to a 2.8% expansion from a 2.1% contraction in the previous quarter. The weak increase, however, was in line with the recent improvement in fiscal balances.
On a similarly positive note, fixed investment accelerated from a 8.0% increase in Q2 to a 12.4% rise in Q3, the highest log since Q2 2015. The figure reflected double-digit growth in construction, and machinery and equipment investment; the results of the government’s Credit Guarantee Fund; and ongoing nationwide campaigns on residential investment. Growth in machinery and equipment, at 15.3% in Q3, was also the fastest in two years and followed a sharp contraction in Q2.
Looking at the details of the external sector, a significantly weaker lira and strong growth in the European Union drove a 17.2% surge in exports in Q3. The increase was well above the 10.7% rise recorded in the previous quarter. Aided by the positive base effect, it marked the highest figure since Q2 2012. However, strong domestic demand fueled a 14.5% expansion in imports following a tepid 1.8% increase in Q2, which caused the sector’s net contribution to overall growth to shrink to 0.3 percentage points from the 1.9 percentage-point contribution recorded in the previous quarter.
The economy is overwhelmingly seen as having peaked in the third quarter as the positive base effect dissipates and the government’s stimulus measures expire. In addition, authorities are likely to limit fiscal stimulus next year in a bid to create enough maneuvering room ahead of the 2019 election cycle.
Turkey GDP Forecast
FocusEconomics Consensus Forecast panelists see GDP expanding 3.5% next year, which is unchanged from last month’s forecast. For 2019, the panel sees the economy growing 3.7%.
Author: David Ampudia, Economist