Türkiye’s economy grew by 3.8% in Q2, 2023 due to strong household spending but this activity should slow the remainder of the year, as stimulus introduced during elections wind down and big interest rate hikes are applied.
A Reuters poll expects full-year growth at 2.9 percent.
Household expenditure was driven in part by a currency crash in June and a rebound in inflation that stoked consumption.
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Growth was also supported by fiscal stimulus ahead of the May elections that saw President Tayyip Erdogan re-elected, and this was meant to spur growth, exports, and investments at the expense of low interest rate policies.
The Turkish central bank began tightening rates in June, a move towards more orthodox policies, which will have a negative impact on growth.
The bank has raised the policy rate by 1,650 basis points to 25 percent so far. Inflation stood at 47.83 percent in July and is expected to reach 55 percent in August.
First quarter growth was revised down to 3.9 percent from 4.0, official data showed.
Lower Q1 growth is likely due to a massive earthquake in February which killed more than 50,000 and will cost more than $100 billion in reconstruction efforts.
Türkiye’s economy recovered from the pandemic and grew 5.5% in 2022 despite a slowdown in growth for its main trading partners due to the war in Ukraine, which hurt exports in H2.
Türkiye’s central bank said on Thursday that annual inflation is likely to hover close to 62% at the end of 2023.
The Monetary Policy Committee meeting said last week that monetary tightening will be further strengthened as needed in a gradual manner. Disinflation will be established in 2024, it said, adding that the capacity of the monetary policy framework to achieve the 5% inflation target should be enhanced.
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