Turkish economy to expand at moderate rate in 2016, 2017

The Turkish economy expanded 5.7% y/y in Q4 2015, much stronger than consensus projection of 5%. However, certain factors were responsible for artificially boosting the growth rate. Firstly, in Q4 2015, there were more working days as compared to Q4 2014. Turkey’s real GDP on a workday-adjusted basis expanded at a sequential rate of 0.7% (not annualized) and 4.1% y/y in Q4 2015. Both the output figures were consistent with consensus expectations. Moreover, import’s decline of 2.6% assisted in boosting the real GDP growth rate.

The underlying details were quite strong. Real consumer spending growth continued to be solid, growing 4.7% in Q4. The strength in consumer spending is encouraging amidst accelerating inflation that occurred in the end of 2015. Meanwhile, investment spending growth recovered to 3.5% y/y after having a downward trend in recent years. In the fourth quarter, real exports grew 2.1%, returning to positive territory. The sharp decline of Turkish lira since mid-2014 is possibly starting to stimulate growth in exports, says Wells Fargo.

In the past two years, the lira has been pounded. Several emerging market currencies have been impacted because of the economic slowdown that is in progress in developing nations. The widening of Turkey’s current account deficit, which is around 5% of the GDP at present, also tends to put downward pressure on the lira, according to Wells Fargo. Moreover, certain investors have become wary of Turkish assets given the political tensions and recent terrorist attacks in the country.

The Turkish lira continues to be close to its all-time low against the USD; however it is not depreciating any longer. The inflationary pressures from increasing prices of imports should start to wade if the lira continues to be stable in coming months, adds Wells Fargo. Turkey’s CPI inflation rate decelerated in February, and if it continues to decline, the central bank might start to lower interest rates.

The real GDO growth might then bolster more in coming quarters if interest rates are lowered. For the entire 2015, Turkish real GDP expanded 4%. According to Wells Fargo, several analysts anticipate the Turkish economy to continue growing at a modest rate in 2016 and 2017.