Spending Surge Before Erdogan Poll Test Buoyed Turkish Growth

Turkish government spending rose at the highest pace since 2011 during the three months leading up to municipal elections in March when embattled Prime Minister Recep Tayyip Erdogan secured a morale-boosting victory.

Spending by the central and local governments rose 8.6 annually through the first quarter of this year, the biggest jump since the third quarter of 2011, according to official data released today by the state statistics agency in Ankara. Government expenditure contributed 1 percentage point to gross domestic product expansion of 4.3 percent in the period, beating the median forecast of 4.2 percent in a Bloomberg survey of 15 economists.

The spending increase was probably driven by local governments before the March 30 elections where Erdogan’s ruling Justice and Development Party emerged with a major win, said Inanc Sozer, chief economist of Odeabank AS in Istanbul.

“Municipalities apparently spent quite a lot before the vote,” Sozer said by e-mail after the first-quarter data was released. “We can see the impact of elections judging by the nature of spending. Investments on machinery contracted while construction spending rose.”

Erdogan this year had to fend off one of the biggest challenges in his 11 years in office as a police investigation into alleged government corruption implicated him and his close allies. The Turkish central bank more than doubled its policy rate to 10 percent after an emergency meeting on Jan. 28 to stem a run on the lira which was exacerbated by the rising political risks.

Private sector investment tracked public outlays during the quarter, the data show. Company spending rose 5.9 percent in the construction sector, while private investment in machinery and equipment declined by 4.7 percent.

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