People shop at a fresh market in Istanbul, Turkey, July 5, 2023. REUTERS/Dilara Senkaya/File Photo acquire license rights
ISTANBUL, Aug 31 (Reuters) – Turkey’s economy grew a more-than-expected 3.8% in the second quarter on strong fiscal spending, data showed on Thursday, but activity is likely to continue into year-end as election-related stimulus fades and there are sharp interest rate hikes.
Gross domestic product (GDP) rose a seasonally and calendar-adjusted 3.5% quarter-on-quarter, also beating forecasts, data from the Turkish Statistical Institute showed.
Household spending rose 15.6% annually and imports of goods and services rose 20.3%, partly due to a currency plunge in June and a rebound in inflation that boosted consumption. Exports fell by 9.0% over the same period.
Growth was also supported by fiscal stimulus ahead of May’s elections, which saw President Tayyip Erdogan extend his rule into a third decade.
By the time of the election, Turkey’s central bank had long cut interest rates as Erdogan prioritized growth, exports and investment over curbing inflation.
Favorable borrowing costs continued to support economic activity in the second quarter. However, growth was expected to slow for the remainder of the year after the central bank began tightening monetary policy in June following a general reversal towards more orthodoxy.
So far, it has raised interest rates by 1,650 basis points to 25%. Inflation was 47.83% in July and is expected to exceed 55% in August.
A Reuters poll had forecast the economy to grow 3.5% annually in the second quarter and pointed to a slowdown in the coming months.
First-quarter growth was revised down to 3.9% from 4.0%, official data showed.
Economic activity was impacted in the first quarter by severe earthquakes that devastated the south-east of the country, killing more than 50,000 people. Reconstruction efforts are expected to cost more than $100 billion.
Turkey’s economy recovered strongly from the COVID-19 pandemic and grew by 5.6% in 2022, continuing its winning streak on strong domestic demand and exports. This came despite a slowdown in growth at its main trading partners due to the war in Ukraine, which impacted exports in the second half of the year.
Reporting by Ali Kucukgocmen and Ebru Tuncay; Edited by Jonathan Spicer
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