Turkey economy grew 7.4% in Q3; lira clouds outlook
A street vendor sells Turkish national flags at Mahmutpasa street, a popular middle-class shopping district, in Istanbul, Turkey March 22, 2021. REUTERS/Murad Sezer/File Photo
ISTANBUL, Nov 30 (Reuters) – Turkey’s economy grew 7.4% year-on-year in the third quarter, meeting expectations on the strength of retail demand, manufacturing and exports, official data showed on Tuesday, though it did not ease worries over the setting of policy.
Gross domestic product (GDP) expanded 2.7% compared with the previous quarter on a seasonally and calendar-adjusted basis, data from the Turkish Statistical Institute showed.
The data emerged against the backdrop of a 43% slide in the lira against the dollar this year. The lira weakened 2.2% to 13.08 by 1052 GMT.
Analysts warned about the lira’s impact on future growth, with Goldman Sachs revising its 2021 growth forecast up to 10.5% from 9.5%, while trimming its 2022 prediction by half a percentage point to 3.5%.
“We think that the GDP figures released today tell us little about the pace of economic activity going forward as the recent sell-off in the lira is likely to impact economic activity significantly,” said Goldman Sachs’ Murat Unur.
President Tayyip Erdogan, who is staunchly against higher interest rates, has said Turkey will prioritize growth, employment and investments, suggesting the exchange rate and inflation could drift even higher.
The central bank has slashed its policy rate by 400 basis points to 15% since September as part of an easing cycle which economists say is reckless given inflation soaring to 20% and the tumbling lira.
“Lower rates might deliver high real GDP growth but at the price of a weaker currency, higher inflation and longer term concerns about macro financial stability,” said Tim Ash, a veteran Turkey watcher at BlueBay Asset Management.
“The longer these settings are maintained the greater the risk of a systemic economic crisis in Turkey – particular risks there of inflation spiraling out of control and a bank run.”
In a Reuters poll, the economy was forecast to have expanded 7.5% in the third quarter with full-year growth seen at 9.5%. However the lira’s recent crash and soaring inflation are expected to hinder growth in coming months.
Second-quarter growth was revised to a massive 22.0% annually from an initial 21.7%, rebounding after a sharp slowdown a year earlier due to COVID-19 restrictions. read more
The Reuters poll had also forecast that the economy will grow 9.5% in 2021 as a whole despite expectations that the weak lira and inflation will hinder growth in the coming months.
Additional reporting by Can Sezer, Ebru Tuncay and Karin Strohecker; Writing by Daren Butler; Editing by Andrew Heavens, Jonathan Spicer and Bernadette Baum
January 12, 2022