Turkey’s Economic Growth in Q2

By Ezgi Erkoyun and Can Sezer

ISTANBUL (Reuters) – Turkey’s economy grew less than expected in the second quarter, expanding an annual 2.5% despite a year-long monetary tightening campaign, according to data released on Monday. However, the quarterly growth rate surprised analysts by remaining positive.

Second-quarter gross domestic product (GDP) grew 0.1% from the previous quarter on a seasonally and calendar-adjusted basis, as reported by the Turkish Statistical Institute (TUIK), avoiding an anticipated contraction.

A Reuters poll had initially forecasted the economy to expand 3.2% annually with a projected 3.35% growth for 2024.

Since June 2023, the central bank raised its key interest rate to 50% from 8.5% to cool demand and lower inflation, which peaked at 75% in May but dropped to below 62% in July, with expectations for further decline.

Finance Minister Mehmet Simsek stated that leading indicators are showing that growth is stabilizing in the third quarter. He indicated an expectation of a “balanced growth composition” for the year, noting:
“Growth has begun to stabilize, the current account deficit has narrowed, the risk premium has decreased, forex flows have accelerated, reserves have improved, and we have entered a disinflation process,” he wrote on X.

Growth sectors included:
– 6.5% in construction
– 3.7% in real estate activities and agriculture, forestry, and fishing
– 3.4% in information and communication
– 7.4% value added in other service activities, according to TUIK.

The first-quarter growth was revised down to 5.3% from 5.7%, attributed to strong domestic demand bolstered by a minimum wage hike and households pre-emptively making purchases due to anticipated higher inflation.

Despite a slowing economy, Capital Economics noted, “the net result is that, although the economy is slowing, it hadn’t weakened to the extent we (and most others) thought it would have.”

The firm also commented that the “rebalancing remains bumpy.”

Last year’s annual growth was revised up to 5.1% from an initial 4.5%, despite a slowdown in major trading partners and a devastating earthquake in February.

Earlier on Monday, data indicated that the Purchasing Managers’ Index (PMI) for Turkish manufacturing rose to 47.8 from 47.2 in July, according to a survey by the Istanbul Chamber of Industry and S&P Global. However, it remained below the 50-point threshold indicating growth in activity.