Economy

Turkish growth slows as anti-inflation measures bite

November 29, 2024, 3:23 PM

A shopping district in Istanbul. Some forecasters think Turkey's central bank will cut interest rates this month

GDP growth slips to 2.1% in Q3
Worst result since Covid-hit Q2 2020
Construction and services prop up economy

Turkey’s economy shifted down another gear in the third quarter, as government efforts to curb demand cut deeper into business and consumer activity.

GDP increased by 2.1 percent in the third quarter, slowing from 2.4 percent in the second quarter, according to the official agency Turkstat. Growth in most sectors was either flat or slowing.

Industry dipped by 2.2 percent and services – a core component of the economy – rose by just 2.2 percent.

However, there was better news from the construction industry, which increased 9.2 percent year on year, and a rise of 6.2 percent in the finance sector. Agriculture recorded growth of 4.6 percent – July to September being the harvest time for most Turkish crops.

The third-quarter result was the worst three-month outcome since the second quarter of 2020, when the first wave of Covid hit Turkey and GDP contracted by more than 9 percent.

The quarterly result fell short of analysts’ expectations too – GDP growth of about 2.6 percent had been predicted. The figure for the second quarter was also revised down from 2.5 to 2.4 percent in the latest Turkstat report, published on November 29.

Although growth was below expectations and industry has contracted, economist Mustafa Sönmez said construction and services were propping up other sectors to keep GDP positive.

Added to this, government efforts to slow the economy – such as raising interest rates and restricting access to credit – had not been fully successful, he told AGBI.

“These have failed in cooling the economy because demand from the wealthier circles in society and state spending is still very much alive, thus also failing to control inflation,” Sönmez said.

Looking forward, Sönmez forecast GDP growth of between 1 and 2 percent in the fourth quarter, which would put year-end expansion at about 3 percent.

There have been some suggestions that the government and the central bank may ease fiscal tightening before the end of the year. US bank JP Morgan is forecasting a cut of up to 2 percentage points in the central bank’s key lending rate in December.

However, any move to lower the benchmark rate, currently 50 percent, may depend on the November inflation data due out on December 3.

Inflation stuck at 48.6 percent in October and another higher than expected number may force the bank to hold until into the new year.