Official data released on Wednesday (September 1) showed that the Turkish economy rebounded strongly in the second quarter, setting a record growth rate. The previous year has slowed sharply due to restrictions on the new crown epidemic.
According to the Turkish Statistics Agency (TurkStat), during the period from April to June, the gross domestic product (GDP) increased significantly by 21.7% year-on-year, which was the highest figure since 1999. Data show that after adjusting for seasonal and calendar factors, the economy grew by 0.9% compared with the previous three months. The growth rate in the first quarter was revised from the initial 7% to 7.2%.
In response to the surge in new coronary pneumonia cases, Turkey once again implemented curfews, weekend lockouts and closed restaurants this year, including strict but short confinement in April and May due to more severe cases of new coronary pneumonia. However, the manufacturing industry and the overall economy were basically unaffected by these measures, which were completely cancelled in June.
Last year, Turkey curbed the impact of the epidemic through interest rate cuts and government-supported credit stimulus measures to encourage consumption.
The economy grew by 1.8% last year, although it plummeted by 10.4% in the second quarter. This is one of the few economies in the world that has avoided annual contraction under the influence of the initial pandemic. Its performance in the second quarter surpassed most G20 countries. Turkey ranks second in the Organization for Economic Cooperation and Development (OECD) countries, after the United Kingdom.
In the second quarter, the member countries of the Organization for Economic Cooperation and Development (OECD) grew by 22.2% year-on-year, while contracting 21.4% in the same period last year. Spain ranked third, with an increase of 19.8% from April to June this year, and a decrease of 21.6% last year. During the same period, the economies of Mexico and France grew by 19.5% and 18.7% respectively. The Eurozone’s GDP growth rate for the quarter was 13.6%, while that of the European Union was 13.2%.
From April to June this year, the GDP of the Organization for Economic Cooperation and Development in the United Kingdom increased by 13% year-on-year, but it was still lower than the level before the epidemic.
Vibrant service industry
Turkey's economic growth in the second quarter was dominated by the service industry, which grew by 45.8%, followed by industrial growth by 40.5%, and the information and communications industry by 25.3%. Household consumption (which is estimated to account for about two-thirds of the economy) remains one of the main drivers of growth. Compared with the same period last year, an increase of 22.9%. The real estate industry grew by 3.7%, the construction industry grew by 3.1%, and the agricultural industry grew by 2.3%.
The size of the economy increased from 741.1 billion U.S. dollars last year to 765.1 billion U.S. dollars (6.34 trillion Turkish Liras) in the second quarter. Exports increased by 59.9% year-on-year, and imports increased by 19.2% year-on-year. The total fixed capital formation, which measures corporate investment, increased by 20.3% annually. After an increase of 0.7% in the previous quarter, government spending increased by 4.2%.
"Low inflation, foreign exchange stability is essential"
Finance Minister Lütfi Elvan (Lütfi Elvan) emphasized the importance of tackling inflation when commenting on the growth data. He said: "For sustainable and comprehensive growth, low inflation, exchange rate stability and predictability are essential. We are working hard to achieve this goal. We are working hard to maintain growth to further improve fair income distribution. Investment and net foreign Demand accounted for 57% of the April-June growth."
The August inflation data released on Friday is expected to remain at around 18.95% in July, driven by consumer demand, the depreciation of the Turkish lira (leading to higher import costs), and rising global commodity prices. The Central Bank of Turkey predicts that by the end of the year, consumer prices will fall to 14%.
In detailing these figures, Minister of Trade Mehmet Mu stated that exports of goods and services also account for a large share of the growth. Mush pointed out that the contribution of exports to growth was 10.8 percentage points. He said: “This is the highest record since 1998, and half of the growth is driven by exports of goods and services. We will further increase export support through measures in areas such as additional export support, remote country strategies, and electronic exports. Contribution to economic growth. We will continue to grow on the basis of investment, production and exports."
The second quarter data is in line with market expectations
A survey of 14 economists conducted by Reuters predicts an annual growth rate of 21.7%. This will drive GDP growth to 8% or higher in 2021.
Bloomberg's survey predicts that it will increase by 1% in the first quarter of this year and 21% year-on-year. A survey by the Anadolu News Agency (AA) predicts an annual growth of 21.8%, exceeding 8%.
The government officially predicts a growth rate of 5.8% this year, but Irvine said that if the performance is strong from April to June, the annual growth rate may exceed 8%.
Upward correction
Some leading indicators have strengthened the prospects for continued economic expansion, prompting some indicators to be revised upwards. The official economic confidence index is above 100, indicating an optimistic outlook. Industrial production increased year-on-year for the 13th consecutive month in June. Due to the steady increase in production and new orders, the Turkish factory production activity in August also continued to be optimistic.
Haluk Bürümcek i, a financial analyst and economist, said: "Leading indicators from July to August show that economic activity maintained a strong momentum in the third quarter. He changed his full-year growth forecast from 7.7% to 9.3%. In addition, the international credit rating agency Moody's on Tuesday raised Turkey's 2021 economic growth forecast from 5% to 6%.
In the "2021-22 Global Macroeconomic Outlook" report, the growth rate forecast for 2022 was revised from 3.5% to 3.6%. The report pointed out that due to the continuous recovery of the global economy and the progress made in vaccination against the new crown virus, the recovery of the tourism industry has supported the growth of the Turkish economy.
Wall Street investment banks JPMorgan (JPMorgan) and Goldman Sachs (Goldman Sachs) also raised their forecasts for Turkey's economic growth on Wednesday due to strong performance in the country's domestic economy and export sectors. JPMorgan Chase stated that it has revised its GDP growth forecast for 2021 from 6.8% to 8.4%. It will keep its forecast for 2022 unchanged at 3.4%. Goldman Sachs further raised its forecast for 2021, from the previous 7.5% to 9.5% year-on-year.
Turkish economists said in a report: “In general, the Turkish economy has grown faster than we thought, and its external balance has not deteriorated because the rebound in foreign demand is very supportive.”