Turkish Economy Grows Most Since 2014 on Household Spending

  • Growth beats estimates despite political uncertainty, violence
  • Household, public consumption drove expansion in third quarter

Turkey’s economy expanded at its fastest pace since early 2014 in the third quarter, as household demand and public consumption shook off the political uncertainty of an election and a resurgence of violence with Kurdish militants.

Gross domestic product grew 4 percent in the three months to September, compared with 3.8 percent in the second quarter, Turkey’s statistics agency said Thursday. The median estimate of 15 analysts in a Bloomberg survey was 2.7 percent. Seasonally-adjusted output rose 1.3 percent from the previous quarter.

Household demand, which makes up about two-thirds of the economy, expanded 3.4 percent from year earlier. Thursday’s report shows consumption held up even after the ruling AK Party lost its parliamentary majority in June and violence flared between the army and autonomy-seeking Kurds in the southeast, said Bora Tamer Yilmaz, an economist at Ziraat Yatirim in Istanbul whose forecast for 4.4 percent growth proved most accurate in the survey.

“Turkey’s domestic demand maintains its strength and continues to be the main driver of economic growth,” Yilmaz said by phone after the data release. “We saw that consumption was strong in this period even as political uncertainties rose.”

The lira advanced as much as 0.4 percent after the data was published, and was trading 0.1 percent higher at 2.9133 per dollar at 12:15 p.m. in Istanbul. The yield on Turkey’s two-year government notes rose five basis points to 10.88 percent, according to data compiled by Bloomberg.


Consumer expenditures rose 3.4 percent in the third quarter, compared to 5.5 percent in the previous period, Turkstat said. Government outlays on salaries as well as purchases of consumption goods and services rose 7.8 percent, up from 7.2 percent in the second quarter.

The data also support the “rebalancing” process in Turkey’s external trade, Yilmaz said, as imports continued to fall in the third quarter while consumers and the government accelerated spending. As a result, the contribution of net exports to annual growth was close to zero, as imports contracted faster than exports.

The data weren’t universally positive. Public and private investments slowed and their combined contribution to the economy shrank 0.5 percent, compared with an expansion of 9.7 percent in the second quarter. That was expected due to uncertainty following the June parliamentary elections, Yilmaz said.

“We expect investments to support Turkish growth in the last quarter given that the ruling party regained its majority in the November election, reducing the uncertainty,” he said.

Breathing Space

Turkey’s current-account deficit, the difference between all the goods and services it exports and imports, shrank to $25.4 billion during the first 10 months of this year, compared with $33.8 billion during the same period a year ago, the central bank in Ankara said Thursday.

The bank’s governor, Erdem Basci, said Wednesday that the deficit would continue to narrow as policy makers try to keep consumer loan growth in check. While the narrowing gap earns Basci some political capital, President Recep Tayyip Erdogan has in the past frequently accused the bank of slowing economic expansion with excessively high lending costs.

The current pace of growth may ease some of the political pressure to keep monetary policy loose, William Jackson, a senior emerging-markets economist at Capital Economics Ltd. in London, said in an e-mailed note.

“This reinforces our view that the monetary policy committee will begin to raise interest rates at the next council meeting on Dec. 22,” Jackson said.

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