Türkiye’s economy expanded at a slower-than-expected pace in the second quarter, official data showed on Monday, weakening in the face of a yearlong monetary tightening drive, but the quarterly growth rate surprised analysts by remaining positive.
The gross domestic product (GDP) grew by 2.5% year-over-year between March and June, the Turkish Statistical Institute (TurkStat) said.
That compared to the downwardly revised 5.3% in the previous three-month period when strong domestic demand was pushed up by a minimum wage hike and households were bringing purchases forward with the expectation of higher inflation.
Since June 2023, the central bank has hiked its key interest rate to 50% from 8.5% to cool demand and lower inflation, which touched 75% in May but dipped to below 62% in July and is expected to continue falling.
Treasury and Finance Minister Mehmet Şimşek said that leading indicators show growth continues to stabilize in the third quarter and that “a balanced growth composition” is expected this year.
“Growth has begun to stabilize, the current account deficit has narrowed, the risk premium has decreased, while forex flows have accelerated, reserves have improved, and we have entered a disinflation process,” Şimşek wrote on social media platform X.
Adjusted for seasonality and calendar effects, the GDP grew by 0.1% from the previous quarter, the data showed, avoiding an expected contraction. The figure was down from 1.4% during the previous period.
The median estimate in most surveys was for an annual growth of around 3.2%.
The data showed domestic consumption grew by 1.6% in the second quarter from the same period last year. It expanded by 6.8% in annual terms in the first quarter.
There was a growth of 6.5% in construction, 3.7% in real estate activities and agriculture, forestry, and fishing, and 3.4% in information and communication, with the value-added increasing by 7.4% in other service activities, the TurkStat said.
‘Bumpy’ rebalancing
“The net result is that, although the economy is slowing, it hadn’t weakened to the extent we (and most others) thought it would have,” Capital Economics said in a note.
The “rebalancing remains bumpy,” it said.
Last year’s annual growth was revised up to 5.1% from an initial 4.5%, despite a slowdown in main trading partners and devastating earthquakes in February.
Earlier on Monday, data showed the Purchasing Managers’ Index (PMI) for Turkish manufacturing ticked up to 47.8 from 47.2 in July, according to a survey by the Istanbul Chamber of Industry (ISO) and S&P Global, still standing below the 50-point level that marks growth in activity.
Economists expect tight monetary policies and fiscal measures will continue to slow domestic demand through the end of the year.
“We expect strengthening macro-financial stability and more supportive global conditions to limit the short-term impact of disinflation on growth,” said Şimşek.
Data on Tuesday is forecast to show Türkiye’s annual inflation continued its sharp decline in August, while monthly inflation is seen rising amid a gas price hike, according to surveys.
The median estimate of nine economists in a Reuters poll saw annual inflation falling to 52.2% in August from 61.78% in July, after hitting its highest level since late-2022 in May. Forecasts ranged from 51.49% to 52.74%.
Economists polled by AA Finance also estimate inflation easing to 52.2% in August.
Month-over-month, inflation is rising to 2.64%, with forecasts ranging between 2.15% and 3.1% on the back of a natural gas price hike.
In August, the unit price of natural gas for residential use was raised by 38%, the first hike in almost two years. According to calculations by economists, the natural gas price hike in August will add some 65 basis points to inflation.
Monthly inflation was high in January and February, largely due to a big minimum wage hike and new-year price updates, before slowing to some 3.2% in March and April. After dipping in June, inflation rose to 3.23% in July due to midyear price adjustments.
Earlier this month, Central Bank of the Republic of Türkiye (CBRT) Governor Fatih Karahan said the rise in monthly inflation in July is temporary as the bank held its end-year inflation forecast steady at 38%.
The bank has said it is monitoring inflation risks and vowed to tighten further in the case of a significant deterioration in inflation.
In the minutes of its last month’s rate-setting meeting, released last week, the central bank said monthly inflation will slow in August compared to the previous month, led by the low course of food prices.
Its next Monetary Policy Committee (MPC) meeting is scheduled for Sept. 19.
