Turkey: Turkish economy bounces back in Q3
December 2, 2019
The Turkish economy returned to growth in the third quarter after contracting for three consecutive quarters, as the economy expanded 0.9% year-on-year on a non-adjusted basis. The result, which contrasts the revised 1.6% contraction recorded in the second quarter (previously reported: -1.5% year-on-year), came on the back of stronger domestic demand. Economic growth in quarter-on-quarter seasonally-adjusted terms, however, slowed to 0.4% from the revised 1.0% expansion recorded in the second quarter (previously reported: +1.2% quarter-on-quarter).
Domestic demand strengthened in the quarter. Private consumption swung from a 1.0% year-on-year contraction in the second quarter to a 1.5% expansion in the third amid softening inflationary pressures. At the same time, growth in consumer credit accelerated as the Central Bank continued to loosen its monetary policy stance. Muhammet Mercan, chief economist at ING Turkey, added that loan growth has picked up due to “the central bank’s regulatory move linking reserve requirement ratios to loan growth. The bank is seeking to support activity through faster lending and significant easing is reducing yields and making it more affordable to borrow.” In addition, reduced political uncertainty and improving relations with the U.S. should have supported private consumption as well. Furthermore, government consumption growth more than doubled from a 3.4% expansion in the second quarter to a 7.0% increase in the third quarter. On the other hand, fixed investment contracted 12.6%, reflective of falls in construction and machinery and equipment investment, although this still marked an improvement from the 22.4% nosedive in Q2.
The external sector, meanwhile, dragged on the economy for the first time in six quarters. Exports of goods and services expanded 5.1% year-on-year in the third quarter, moderating from the 8.1% expansion logged in the second quarter. At the same time, imports of goods and services swung from a 17.0% contraction in Q2 to a 7.6% rise in the third quarter; this was largely reflective of a supportive base effect as imports dropped 16.3% in the third quarter of last year in the wake of the currency crisis.
Looking ahead, the Turkish economy is seen gaining momentum next year, largely due to a supportive base effect. Domestic demand is expected to rise from the ashes on a rebound in private consumption and fixed investment, aided by looser monetary policy and a credit impulse. However, the external sector will likely be less supportive as a consequence, as imports will recover in tandem, while risks remain tilted to the downside amid lingering geopolitical tensions and market volatility.
Author: Jan Lammersen, Economist