Turkey Domestic Demand (ann. var. %)

Domestic Demand in Turkey

GDP growth grows at softest pace since Q2 2020 in Q4 2022

Activity softened in the fourth quarter, with GDP expanding 3.5% year on year (Q3: +4.0% yoy). Q4’s reading marked the slowest growth since the outbreak of the Covid-19 pandemic in Q2 2020. The deceleration can largely be attributed to a weaker performance of the external sector.

Private consumption growth fell to 16.1% in Q4, marking the weakest expansion since Q3 2021 (Q3: +20.4% yoy), dented by stubbornly high inflation and depleted savings. Meanwhile, public spending picked up to a 9.0% increase in Q4 (Q3: +4.7% yoy). Moreover, fixed investment rebounded, growing 2.6% in Q4, contrasting the 0.8% contraction in the previous quarter, likely buoyed by lower interest rates.

Exports of goods and services plunged at the steepest rate in over two years, contracting 3.3% in the fourth quarter (Q3: +12.4% yoy). In addition, imports of goods and services growth slowed to 10.2% in Q4 (Q3: +11.9% yoy).

Economic activity rebounded on a seasonally adjusted quarter-on-quarter basis, growing 0.9% in Q4, contrasting the previous quarter’s 0.1% decrease.

Shifting to this year, economic growth is seen slowing markedly. Monetary tightening around the world will add further pressure on the lira, which will keep imported inflation elevated, weighing on domestic activity. Moreover, the global economic slowdown will constrain the external sector. Additionally, February’s earthquake in the country’s southeast is taking a toll on activity. That said, accommodative monetary and fiscal policies will provide some support to activity, although they might also fuel inflation and increase the fiscal deficit.

Analysts at the EIU commented on the short-term impact of the earthquake:

“The larger industrial facilities in the region are mainly in good shape, but smaller businesses have been badly affected, and there is a widespread shortage of labour due to death, injury and the outward migration of people whose homes have been destroyed.”