Turkey’s economy has achieved robust growth amid rising inflation in the first months of this year, but economists fear that it could lose its momentum in the coming months as a global recession is looming.
The annual gross domestic product (GDP) growth in Türkiye accelerated to 7.6 percent in the second quarter from 7.3 percent in the previous quarter, the Turkish Statistical Institute (TUIK) announced on Wednesday.
“We did not only achieve a robust growth performance in the second quarter but also a balanced growth which has continued for the fifth quarter in a row,” Turkish Treasury and Finance Minister Nureddin Nebati said.
Booming domestic demands and expanding exports were the main drivers of the growth, helping offset the stagnating growth in investment. Meanwhile, household consumption expanded 22.5 percent from a year earlier, according to the data.
Unfortunately, the current growth may be close to losing its steam. A survey of analysts in August indicated the Turkish annual GDP growth may slip to 3.3 percent in the third quarter and 1.3 percent in the final quarter of 2022.
“With the signs of global recession becoming evident in the following quarters, we expect the growth momentum to decline,” Enver Erkan, chief economist at the Istanbul-based Tera Securities, told Xinhua.
“We expect domestic demand to erode due to the decrease in purchasing power amid increasing inflation and consequent consumption shock, and the growth effect of external demand will be adversely affected by geopolitical risks,” he said.
Erkan predicted that the annual growth rate for 2022 will slow down to 4 percent.
Gizem Oztok Altinsac, chief economist at the Turkish business association Tusiad, said that galloping inflation would eventually take a toll on consumers who have lost most of their purchasing power.
“We are growing but becoming poorer. We need to ensure economic development, not growth at all costs,” she wrote on Twitter.
Signs of a slowdown have already emerged in industrial production and retail sales, as the business indicators for Turkish manufacturers worsened dramatically last month.
“This is the worst level since the first wave of the COVID-19 pandemic,” Erkan said.
The purchasing managers’ index (PMI) has remained below the 50 threshold in the last five months, pointing to a protracted industrial contraction.
Rather than putting the brakes on prices, Türkiye’s Central Bank Governor Sahap Kavcioglu has been holding back from monetary tightening. Turkish President Recep Tayyip Erdogan is an advocate of low-interest rates despite soaring inflation which hit nearly 80 percent in July.
A surprise rate cut this month took Türkiye’s benchmark rate to nearly 67 percent below zero when adjusted for inflation, which is “the world’s most negative policy rate,” Erkan said.
Furthermore, a surging energy import bill caused by the rise in global prices resulting from the Russia-Ukraine conflict has fuelled a widening external imbalance, widening the current account deficit.
Late on Wednesday, Türkiye hiked gas and power prices by 20 percent for households and up to 50 percent for businesses.
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