Turkey: Strong growth impact in the first quarter
Turkish economy showed a strong growth effect in 1Q21, as evidenced by leading indicators such as industrial production. We expect the GDP growth …
Turkish economy showed a strong growth effect in 1Q21, as evidenced by leading indicators such as industrial production. We expect the GDP growth rates to be announced on Monday to confirm this numerically. Following the economic activity that was restricted last year by the effects of the pandemic period, the growth that started to increase with the credit pumping in the 3Q20 period, had a better outlook driven by the strong course of industrial production in the first part of the year. In the current period, where some sectors are still limited by the effects of the pandemic, industry still seems to be the strong side of the economy. While our expectation for 1Q21 growth is 5%, we expect the 2Q21 period to have the effect that will actually push this year’s growth up with last year’s strong base effect. As the figures are compared to the same period last year, the abnormal effects of the pandemic create an illusion in current annual comparisons. In this respect, periodic changes should be prioritized in the analysis in terms of the outlook for growth and economic recovery.
The conjugate period of 1Q21 from last year, 1Q20, was the period when the peak of the economy before the pandemic. The economy grew by 4.5% in the relevant quarter of last year. In this respect, the strong growth effect in 1Q21 is positive. The factors that vaccination and normalization agenda will determine the 2Q21 and beyond. While the production line and exports advance rapidly and contribute positively to growth, activity restriction due to shutdowns, especially in the services sector, may be effective in the periodic slowdown. At the same time, the increase in output prices together with the rising production costs increases the inflation pressure.
On the other hand, normalization, which corresponded to 3Q20 last year, made a rapid comeback after the contraction in 2Q20. However, it should be underlined that this recovery was heavily supported by the credit boom. As the side effects of this; TRY became unstable, inflationary pressures increased and as a result, the Central Bank tightened its monetary policy by increasing interest rates. Although the current tight monetary policy base was preserved, instability in the currency increased in the last 2 months and continued to pose an upward risk for inflation. Growth is not supported by healthy channels and this is at the center of the economy as a structural problem. Within the framework of the uncertainty in interest rates, the effect of loan growth is not exactly predictable at the moment. Encouraging the rapid growth of loans intensely affects the current account deficit and inflation variables to increase.
If we put all the strengths and weaknesses of the economy into the equation; Although we take into account some of the downside risks we see, we expect the economy to show a growth performance of 5.7% this year.
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