Strong domestic demand and buoyant exports helped Türkiye’s economy extend its hot streak and grow more than expected in the second quarter of the year, official data showed Wednesday.
Gross domestic product (GDP) expanded 7.6% year-over-year in the April-June period on a seasonally and calendar-adjusted basis, the Turkish Statistical Institute (TurkStat) said. Quarterly GDP grew 2.1% compared with the previous three-month period, the data showed.
The government’s new economic program has prioritized production, growth and exports with a low-interest rates policy, aiming to achieve a current account surplus that is said to eventually steady the Turkish lira and cool inflation.
Rising prices helped drive spending while the falling lira helped drive exports. Exports of goods and services increased by 16.4% in the second quarter compared with a year ago in the chained linked volume index, while such imports increased by 5.8%.
The annual GDP grew to $828 billion (TL 15.05 trillion) in the second quarter from $793 billion through the previous three-month period, the data showed.
Household consumption added 13.6 percentage points to growth and foreign demand raised it by 2.7 points, according to bankers’ calculations.
The growth rate makes Türkiye the second-fastest growing economy in the G-20 after Saudi Arabia, whose GDP expanded 11.8% in the second quarter.
Treasury and Finance Minister Nureddin Nebati said the economy had maintained balanced growth for five quarters.
Noting that the strong annual increase in machinery and equipment investments over the last 2 1/2 years continued with 17.8% in the second quarter, Nebati underlined that this was a positive development in terms of increasing production capacity.
“In this period, an additional 900,000 people were employed compared to the end of last year, and the unemployment rate fell to 10.3%,” he wrote on Twitter.
He added that these gains had been achieved thanks to the “Turkish Economy Model,” which prioritizes growth and employment and supports production and exports.
The hallmark of the Turkish economy is balanced, sustainable and employment-oriented growth, Nebati said.
Jason Tuvey, a senior emerging markets economist at Capital Economics, said measures to support households in the face of soaring inflation helped prop up consumer spending.
“Robust growth in the first half of this year, high global energy prices and policies to shield households from the surge in inflation mean that inflation will become entrenched and the current account deficit will remain wide,” he said in a note.
The financial and insurance sector-led growth, expanding 26.6%, was followed by the services sector at 18.1% and professional and administrative support services at 11%. The industrial sector expanded 7.8%.
Banks’ profits soared this year as they continued to lend with rates much higher than the central bank’s one-week repo rate, which it uses to fund the market.
The banking sector’s net profit in the first seven months of the year stood at TL 207.9 billion, up 417.2% from the same period last year, data showed on Monday. Banks’ net interest income surged 216% in the same period.
The central bank unveiled new required bond holdings for lenders last week aiming to bring the rates on corporate loans closer to its policy rate, while consumer loans and mortgages are offered at very high rates.
Surveys expected GDP to have expanded around 7.5% in the second quarter from a year ago. The median estimate of economists in Reuters and Bloomberg surveys for annual GDP growth in the second quarter stood at 7.5%.
Yet, the economic activity is seen cooling off in the second half of the year due to a downward trend in domestic and foreign demand, led by an expected slowdown in Türkiye’s largest trade partners.
Türkiye’s central bank cited signs of a slowdown in the third quarter earlier in August when it surprised markets by cutting its policy rate by 100 basis points, saying it needed to keep driving economic growth.
It added that momentum in industrial production and a positive trend in employment must be maintained.
The robust pace has been overshadowed by soaring inflation, which reached nearly 80% in July, a 24-year high. The increase turned out to be smaller than in previous months, signaling that price pressure might be slowing.
Economists have suggested inflation may be approaching a peak with energy inflation falling sharply and food inflation appearing close to topping out.
President Recep Tayyip Erdoğan has said that he expects inflation to come down to “appropriate” levels by February-March next year, asking for the public to show patience.
Finance Minister Nebati earlier this month also said the inflation rate would enter a sharp downward trend as of December due to favorable so-called base effects and the fall will continue throughout 2023.
He said that “we are not compromising on growth.” He added that “when we do not compromise on growth, combating inflation takes time.”
The Central Bank of the Republic of Türkiye (CBRT) last month raised its year-end inflation forecast to 60.4% and saw it peaking near 90% in the autumn.
Last year, Türkiye’s economy bounced back strongly from the COVID-19 pandemic and grew a revised 11.4%, its highest rate in a decade. Annual growth in the first quarter of 2022 was revised to 7.5% from 7.3%, data showed on Wednesday.
