Economic growth records quickest upturn in three quarters in Q1

GDP growth accelerated to 2.4% on a seasonally adjusted quarter-on-quarter basis in the first quarter from 1.0% in the fourth quarter of last year. Q1's reading marked the fastest expansion since Q2 2023. On an annual basis, economic growth picked up to 5.7% in Q1, following the previous quarter's 4.0% growth.

The quarterly improvement was driven by rebounds in government spending, fixed investment and exports. Government consumption bounced back, growing 2.2% in Q1 (Q4 2023: -4.3% s.a. qoq). Fixed investment also rebounded, rising 2.9% in Q1, contrasting the 0.8% contraction recorded in the prior quarter. That said, household spending growth moderated to 1.1% seasonally adjusted quarter on quarter in Q1 compared to a 3.6% expansion in Q4, as rising inflation throughout the quarter hurt consumers purchasing power. On the external front, exports of goods and services bounced back, growing 2.9% in Q1 (Q4 2023: -2.5% s.a. qoq). Conversely, imports of goods and services fell at a quicker pace of 4.0% in Q1 (Q4 2023: -3.9% s.a. qoq).

Our panelists see sequential GDP growth grinding to a halt in Q2, and pessimistic survey data for April and May backs this projection. Momentum will remain subdued throughout the remainder of the year, dented by the Central Bank’s tight monetary policy stance amid sky-high inflation. Spending cuts announced by the government in May will weigh on growth further. Rising instability in the Middle East poses a downside risk to the outlook.

Muhammet Mercan, chief economist at ING, commented on the outlook: “Growth is expected to lose significant momentum throughout the remainder of the year with tightening financial conditions, slowing real wage growth and a likely increase in the unemployment rate.”

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