Turkey’s economy, valued at $1.1 trillion, has demonstrated faster growth than anticipated, avoiding contraction over two quarters despite substantial interest rate hikes by the central bank, as reported by Bloomberg on Thursday.
Fourth-quarter data reveals a 1% growth in gross domestic product (GDP) compared to the previous three months in seasonally and working-day adjusted terms. This represents a notable improvement over the third quarter’s 0.3% GDP growth. Economists surveyed by Bloomberg had predicted a median growth rate of 0.3%, but the actual performance in the fourth quarter surpassed most forecasts.
Driven by robust household spending and investment, the economy recorded a decline from its 2022 growth rate of 5.5% to 4.5% for the full year.
Okan Ertem, Senior Economist at Turk Ekonomi Bankasi AS, commented on the consumption-oriented growth, noting a slower pace evident in the momentum loss in imports and the net export contribution to GDP approaching zero.
Despite a shift towards tighter monetary policy since June to control consumption and manage inflation, the Turkish economy outperformed expectations on an annual basis in the last quarter. GDP grew by 4% compared to the previous year, exceeding the 3.5% median estimate.
Treasury and Finance Minister Mehmet Simsek emphasized the move toward better quality growth, with expectations of moderate and balanced growth in 2024, supported by investment and exports.
While further rate hikes are not ruled out, Governor Fatih Karahan suggested that tightening might be necessary if domestic demand surges following potential wage hikes. The resilience of consumer spending could present challenges as the central bank aims to reduce inflation to 3.6% by the year’s end.
The recent decline in industrial production contrasts with a modest increase in retail sales, partially attributed to a surge in credit card spending as consumers accelerated purchases ahead of anticipated higher wages before local elections in March. Economists warn of risks to inflation and the current account deficit as domestic demand continues to outpace supply.
