Turkish economic growth slows in Q2, likely to contract in Q3

Turkish economic growth slowed in the second quarter and does not leave any room for optimistic growth projections in the 4 percent range for this year. Turkey’s GDP rose 0.3 percent in sequential terms in the second quarter, and grew 3 percent on year-on-year basis, decelerating from 0.7 percent quarter-on-quarter and 4.4 percent year-on-year growth in the first quarter. Household consumption had mainly driven the economy in the first quarter, while fixed investment did not contribute to growth in the past several quarters. However, in the second quarter, household consumption slowed and its contribution to growth narrowed.

The nation’s continued improvement in the current account is seen as a major positive. However, while this is correct from a balance of payments view, it is no aiding growth any longer. Net exports are a drag on the economic growth. Lower energy prices have basically helped in narrowing the currency account deficit and this does not assist the real GDP that neutralizes price changes.

The political and domestic security environment are not expected to be favourable to an acceleration in consumer sentiment for some time, and the effect on the vital sector of tourism has also been quite sharp, noted Commerzbank in a research report.

Given the result of the coup attempt and ensuring emergency rule, the Turkish economy is expected to shrink 0.6 percent sequentially in the third quarter and remain roughly flat in the fourth quarter. Certain improvement is likely by next year as emergency rule ends and activity resumes.

“Nevertheless, in the absence of particularly strong drivers on the private sector side, we are likely to see quarter-on-quarter increases in the 0.4 percent-0.8 percent range for most of year, which will still yield only c.2 percent full-year growth for 2017”, added Commerzbank.