Turkish Economy Beats All G-20 Nations With Double-Digit Growth

(Bloomberg) -- Turkey's economy expanded faster than peers in the fourth quarter as interest-rate cuts spurred a recovery from the pandemic, but the subsequent rise in the inflation rate could dent growth this year.

Gross domestic product rose 9.1% in the October-to-December period from a year earlier, bringing the full-year expansion to 11%. The quarterly growth beat the median estimate of 9% in a Bloomberg survey, and the annual figure is the highest among G-20 nations.

The expansion was driven by a surge in exports amid a recovery in key export markets in Europe. Domestic consumption was another key driver although there were signs consumer confidence was hurt during the final weeks of the year, when President Recep Tayyip Erdogan's push for lower interest rates resulted in a currency crisis.

The lira's massive drop -- it had lost as much as half its value within a few weeks before the government intervened -- has fueled inflation to around 50%, eating into consumers' disposable income. Russia's invasion of Ukraine is expected to further add to inflationary pressures, clouding the outlook for growth this year.

“Turkey's economy faces the risk of another shock from rapidly rising energy and agricultural commodity prices caused by Russia's war in Ukraine, which also weighs on the lira,” said Piotr Matys, an analyst at InTouch Capital Markets Ltd. “Inflation is likely to stay high for longer reducing disposable income of Turkish households while corporates will struggle to absorb consistent inflationary pressure from imported commodities.”

Inflation Outlook

Under pressure from the president, the central bank cut interest rates by 500 basis points in four consecutive moves from September to the end of 2021. While the cuts led to an uptick in spending and lira depreciation saw exporters contribute more to overall growth, price gains accelerated to their highest in two decades.

Consumer confidence hovered around historic lows in the first quarter as a result. Household consumption, which accounts more than a half of the economy, rose 21.4% during the first quarter of 2021 from a year earlier. Exports rose 20.7% during the same period.

Oil price surge from Russia's war on Ukraine will likely add to inflationary pressures and may result in a decline in the number of foreign visitors from those two countries. They accounted for more than a quarter foreign tourists last year.

“A high annual growth can be expected again in the first quarter of 2022,” but a decline thereafter will likely bring the overall annual growth toward 4%,” said Enver Erkan, chief economist at Tera Yatirim.

The government's official target is 5% and the International Monetary Fund's estimate is 3.3%.

Coming Up

Turkey's Statistical Institute will publish February inflation data on March 3. The central bank's next rate-setting meeting is scheduled for March 17.