Turkey Reaps Fruits of 1,000 Basis Points of Easing in GDP Data

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The Turkish economy likely continued on its recovery path in the third quarter as banks doling out credit supported growth and industrial output expanded.

Data due Monday will show gross domestic product rose 1.1% in the third quarter versus the previous three months, according to economists polled by Bloomberg. The year-on-year rate is forecast to clock in at 1%.

Earlier this year, Turkey emerged from a recession and currency crisis. Economic data such as factory output indicate the economy is back on a growth path, helped by central bank stimulus.

To ease the flow of credit and shore up momentum, authorities have loosened restrictions on bank reserves. Still, the prospect of U.S. sanctions and political turmoil have weighed on consumer and business confidence.

“The data will confirm that recovery in economic activity continues,” according to Piotr Matys, a strategist at Rabobank in London. “But the key question is whether it will prove sustainable given that the administration has not made sufficient progress in implementing reforms that would change the model of the Turkish economy.”

With the lira now stabilized, policy makers have started easing. Since taking office nearly five months ago, Central bank Governor Murat Uysal slashed the benchmark rate by 1,000 basis points, undoing much of the monetary tightening designed to control the currency and curb runaway inflation.

While the fact the economy now finds itself on more stable footing, youth unemployment is near record highs. Political tensions could also derail growth.

Last week, Turkey began testing a component of its newly acquired Russian air defense system, a step that risks escalating a dispute with the U.S. and touching off possible sanctions.

President Recep Tayyip Erdogan's government dramatically increased its target for economic growth to 5% for 2020-2022, after slashing this year's forecast to 0.5%.

Whether that goal can be achieved hinges on the strength of the private sector, investment and exports, with the government relying on cheap credit to give the economy a shot in the arm.

--With assistance from Harumi Ichikura.

To contact the reporter on this story: Cagan Koc in Istanbul at ckoc2@bloomberg.net

To contact the editors responsible for this story: Onur Ant at oant@bloomberg.net, Catherine Bosley, Craig Stirling

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