Guldem Atabay: Turkey continued to experience strong growth driven by domestic demand 3Q23: Slowdown to follow in 2024

As per the data provided by the Turkish Statistical Institute (TÜİK), the Turkish economy grew by 5.9% compared to the same quarter of the previous year and by 0.3% compared to the second quarter. Economists had anticipated a growth of 5.5% due to the sustained high consumption driven by domestic demand. The quarterly growth expectation was 1.0%.

The annual growth rate for the first nine months hence is 4.6%.

Household consumption continued to be the primary contributor to growth, accounting for 7.7 points. Investments followed with a contribution of 3.4 points, while the contribution of public expenditures to growth was noteworthy at 0.7 points.

In the third quarter, the factors pulling down the growth were net exports with -2.6 points and inventories with -3.2 points.

In the third quarter, construction grew by 8.1%, industry by 5.7%, financial and insurance activities by 5.1%, services by 4.3%, public administration, education, human health, and social services activities by 3.6%, real estate activities by 2.7%, other service activities by 2.2%, information and communication activities by 1.7%, and the agriculture sector by 0.3%. However, professional, administrative, and support service activities decreased by 2.5%. Product taxes (less subsidies) increased by 16.5%.

Household consumption increased by 11.2%, public expenditures by 5.3%, and gross fixed capital formation increased by 14.7%. The contribution of net exports to growth was negative.

The share of labor’s Gross Value Added (GVA) in total was reduced to 32.2%.

The share of labor payments in current prices within Gross Value Added was 26.1% in the third quarter of the previous year, and this ratio increased to 32.2% in 3Q23. It decreased compared to the previous quarter’s level of 34.3%. The share of capital was 55.0% in the third quarter of the previous year, and in the third quarter of 2023, it decreased to 47.0%. It also increased from 43.8% in the previous quarter to 47.0%.

Quarter-to-quarter growth reflects the change in economic performance from one quarter to the next and provides insights into the short-term fluctuations and trends within an economy.

In this context, the description highlights the volatility in quarter-to-quarter growth in the mentioned period:


  • In the first quarter, there was a contraction of 0.3%, followed by a sharp increase in quarterly growth to 3.3% during the election period, driven by excessive spending. However, this was later followed by growth muted down to 0.3% in 3Q23 due to interest rate hikes. This volatility is attributed to the efforts to achieve high growth during the election period, leading to a resurgence in inflation. The narrative suggests that in the upcoming quarters, contractions are inevitable compared to previous quarters.
  • In the construction sector, after growing by 3.3% in the first quarter, there were contractions of 0.3% and 1.3% in the second and third quarters, respectively. Interest rate hikes negatively impacted this sector, although earthquake-related constructions are expected to contribute to growth in 2024.
  • The manufacturing industry stands out. After growing by 2.3% in the first quarter of 2023, it experienced a 0.2% contraction during the election period due to restrictions on credit. Despite interest rate hikes, the resolution of credit accessibility issues led to a 1.7% growth in the manufacturing sector. However, the weakening of both external and, in the upcoming quarters, domestic demand is expected to negatively impact the performance of the manufacturing sector.




  • On the consumption side, there is a significant shift in household spending levels in the third quarter, marking the beginning of a period of interest rate increases. Household spending, which grew by 2.3% in the first quarter of 2023 and by 4.7% during the election quarter due to pro-growth policies and wage increases, contracted by 1.7% in 3Q23 compared to the second quarter of 2023 as interest rate hikes commenced in the third quarter. The ongoing interest rate increases are expected to keep household spending in negative territory in the upcoming quarters, and the contraction is anticipated to intensify in the second half of 2024.Public expenditures growth in 3Q/2Q, supported by earthquake-related and election-related spending, remain positive at 1.8%. It will continue to contribute to growth throughout 2024.Although export growth strengthened by 5.4% in the third quarter compared to the second quarter, the impact of net external demand is expected to weaken this category in 2024, turning it negative before the end of the year.

    Regarding changes in imports, the slowdown in growth from a 5.2% increase in the second quarter compared to the first quarter to a 2.3% increase in the third quarter is seen as a positive development. However, this is considered insufficient in terms of combating inflation and narrowing the current account deficit. It is likely that import growth will turn more sharply to negative in the coming quarters as the economy slows down and the effects of interest rate hikes are felt more significantly with a delay.

    Combining all these factors, a notable slowdown in the GDP growth of 2024 is expected, dropping to the range of 2-2.5% compared to the anticipated level of 4.2% for this year. Whether such growth slowdown would be enough the make the central bank reach its 36% from its peak of 70% expectedYE2024 CPI inflation target is to be seen.