Turkey: Growth soars in Q4
March 31, 2016
Turkey’s economy continued to show strong growth at the end of 2015, despite rising geopolitical tensions, increasing violence in some parts of the country and volatility in the financial markets. This situation contrasts most of the other emerging-market economies that recorded sharp decelerations in 2015. GDP expanded an astonishing 5.7% annually in Q4, which represented the fastest growth since Q3 2011. The print beat both the revised 3.9% rise observed in Q3 (previously reported: +4.0% year-on-year) and the 3.9% increase that market analysts had expected. In the full year 2015, the economy expanded 4.0%, which was above the 3.1% rise tallied in 2014.
Q4’s acceleration reflected both resilient domestic demand on the back of strong consumption and an improvement in the contribution to growth from the external sector due to a combination of a weak lira and a reduced oil import bill. Government spending recorded the fastest expansion in nearly two years, jumping 8.1% annually (Q3: +8.0% yoy), mainly reflecting decided support by Turkish authorities. Growth in private consumption accelerated from 3.6% in Q3 to 4.7% in Q4. Fixed investment expanded 3.5% annually, which was above the zero result seen in Q3.
In the external sector, a weak lira propelled exports of goods and services, which rose 2.1% in Q4 (Q3: -1.4% yoy) and marked a one-year high. As an importer of oil and raw materials, Turkey benefited from the fall in commodity prices. Imports declined 2.6% annually in Q4 (Q3: -1.2% yoy), mainly due to a reduced oil import bill. Since exports showed a notable performance and imports recorded the steepest contraction in a year and a half, the external sector’s net contribution to overall growth swung from minus 0.1 percentage points in Q3 to plus 1.3 percentage points in Q4.
A quarter-on-quarter analysis does not corroborate the acceleration suggested by the annual figures. GDP rose 0.7% over the previous quarter in seasonally- and calendar-day adjusted terms. The reading was below the 1.2% increase observed in Q3.
While Q4 GDP reading is encouraging news for Turkey, growth momentum has likely not carried into 2016. Heightened volatility in the financial markets at the outset of the year, rising security threats, economic sanctions imposed by Russia following the shooting down of a Russian jet by Turkish forces in December and ongoing geopolitical tensions all promise to have impacted growth in Q1. That said, headwinds are expected to be partially cushioned by government plans to boost spending this year.