Investment in Turkey

Turkey - Investment

Economy bounces back in the third quarter

The Turkish economy recovered strongly in the third quarter from the second quarter’s coronavirus-induced contraction, with GDP expanding 6.7% year-on-year (Q2: -9.9% yoy). The print chiefly reflected strengthening domestic demand, while the external sector continued to drag on the economy.

On the domestic front, household spending rebounded and grew 9.2%, marking the best reading since Q3 2017 (Q2: -8.6% yoy). This came amid the easing of restrictive measures to curb the spread of Covid-19 and a strong credit impulse from the Central Bank. Monetary policy action also buoyed the private sector, with fixed investment surging 22.5% in the third quarter (Q2: -6.1% yoy). Meanwhile, government spending bounced back, growing 1.1% in Q3 (Q2: -0.8% yoy).

On the external front, exports of goods and services dropped for the second consecutive quarter (Q3: -22.4% yoy; Q2: -35.3% yoy), while imports were buttressed by recovering domestic demand, growing 15.8% in Q3 after falling 6.3% in Q2.

On a seasonally-adjusted quarter-on-quarter basis, economic growth came in at 15.6% in Q3, contrasting the previous quarter's 10.8% contraction.

Economic activity is likely to be dented in the final stretch of this year by the recent reinstatement of a weekend curfew and weekday nighttime curfew. Moreover, the global rise in new Covid-19 cases and renewed restrictive measures abroad will weigh on the external sector. Turning to next year, the economy is forecast to bounce back on strengthening domestic and foreign demand amid the reopening of economies, with a potential Covid-19 vaccine rollout posing an upside risk. However, the balance of risks remains tilted to the downside due to lingering uncertainty regarding the pandemic’s evolution, ongoing currency weakness, elevated inflation and a weak external position.

FocusEconomics Consensus Forecast panelists see GDP expanding 4.1% in 2021 and 4.0% in 2022.