Turkish 3Q GDP expected to expand rapidly, but…

Turkey’s economy is expected to have expanded 7.5% in the third quarter of the year and is seen growing 9.5% in 2021, a Reuters poll showed on Wednesday, but the lira’s recent drop and soaring inflation are expected hinder growth in later months.


Turkey’s gross domestic product (GDP) grew a massive 21.7% annually in the second quarter, rebounding after a sharp slowdown a year earlier due to the COVID-19 restrictions.


The median estimate of 15 economists in a Reuters poll stood at 7.5% for year-on-year growth in the third quarter of the year. Forecasts ranged between 5.1% and 11.4% growth.


The boom in the economy has fed into double-digit inflation, which has risen close to 20% in recent months and is expected to rise further as the central bank forges on with rate cuts.



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 soaring inflation and a lira that fell as much as 45% since the beginning of the year.


President Tayyip Erdogan, who is staunchly against higher interest rates, has said Turkey will prioritize growth, employment and investments over high borrowing costs and a low exchange rate.



Paradoxically, economists say the rate cuts could eventually have a negative impact on growth in coming months.


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Such reductions in this environment are counterproductive, said Selva Demiralp, director of the Koc University-TUSIAD Economic Research Forum.


“If you cut the policy rate in an inflationary environment, there might initially be some positive impact on growth,” she said, adding that the current situation in Turkey is a risk for growth and financial stability.


“Eventually, the increase in demand due to lower interest rates is immediately offset by the decrease in demand due to higher inflation and elevated risks,” said Demiralp, a former U.S. Federal Reserve economist.


She described the central bank’s latest moves as a “contractionary easing.”


The median estimate of 15 economists for growth in 2021 as a whole stood at 9.5%, with forecasts ranging between 8.9% and 11%.


The government has recently said it expects to record double-digit growth this year, revising up an earlier estimate of 9%.



Several Turkish economists warned of a sudden stop after the unfolding currency shock, as producers stop sales in fear of not being able to replenish their inventories.  Companies which have the pricing power to pass on cost increases to final prices may discover they priced themselves out of the market. Other add that the demand-reducing effect of higher inflation will stump the impact of lower interest rate on domestic demand.


Exporters have already complained about input procurement bottlenecks, as importers stop activity on account of exchange rate uncertainty.


The Turkish Statistical Institute will announce third quarter GDP data at 0700 GMT on Nov. 30.



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Published By: Atilla Yeşilada

GlobalSource Partners’ Turkey Country Analyst Atilla Yesilada is the country’s leading political analyst and commentator. He is known throughout the finance and political science world for his thorough and outspoken coverage of Turkey’s political and financial developments. In addition to his extensive writing schedule, he is often called upon to provide his political expertise on major radio and television channels. Based in Istanbul, Atilla is co-founder of the information platform Istanbul Analytics and is one of GlobalSource’s local partners in Turkey. In addition to his consulting work and speaking engagements throughout the US, Europe and the Middle East, he writes regular columns for Turkey’s leading financial websites VATAN and www.paraanaliz.com and has contributed to the financial daily Referans and the liberal daily Radikal.