Turkey Private Consumption Boosts GDP Above All Estimates

Updated on
  • Household demand increased 5.7% from year earlier in 4Q
  • Economic growth fell to 2.9% last year from 6.1% in 2015

Turkey’s economy grew at a faster pace than anticipated last quarter as households boosted spending, supporting activity following the failed military coup.

Gross domestic product expanded 3.5 percent in the October-to-December period, faster than all estimates in a Bloomberg survey of economists, which saw an expansion of 1.9 percent. Seasonally adjusted output rose 3.8 percent from the previous three months while full-year growth was 2.9 percent, down from 6.1 percent in 2015, the state statistics institute said Friday.

Turkish households and the government boosted spending after July’s attempted military takeover. The political convulsions that followed hurt consumers and contributed to the economy’s first quarterly contraction in seven years. Private demand picked up in the final quarter of 2016, fueled by household spending on everything from services to consumption goods. Based on strengthening consumer sentiment, it will probably increase at similar levels this year while public spending emerges as an even bigger driver of growth, according to William Jackson, a London-based economist at Capital Economics.

“Government consumption could strengthen if fiscal policy is loosened further,” Jackson said, revising up his 2017 growth forecast to 2.5 percent from 1.8 percent previously. “The drivers of growth are likely to shift. Investment should continue to pick up from last year’s slump.”

The lira strengthened after the report and was trading 0.3 percent higher at 3.6430 per dollar at 11:32 a.m. in Istanbul.

State spending, including on civil servants’ wages and purchases of goods and services, rose 0.8 percent during the final quarter of last year from the same period in 2016. Private consumption, traditionally the main driver of growth, increased 5.7 percent.

Household Demand

Consumer sentiment and investments deteriorated following last year’s failed putsch. The economy shrank on an annual basis mainly due to a contraction in household demand, which has traditionally been the main driver of growth. Third-quarter contraction was revised to 1.3 percent Friday from 1.8 percent, while growth in the preceding three-month period was revised up to 5.3 percent from 4.5 percent.

The Turkish government adopted a series of expansionary fiscal policies to counter the slowdown, which may add as much as one percentage point to the budget deficit by year-end, according to Finance Minister Naci Agbal. Incentives to boost employment and agricultural production, and tax breaks for the tourism industry, were among stimulus measures rolled out.

“The government took some action to boost private consumption,” said Odeabank economist Sakir Turan, who’d estimated 2.7 percent expansion from a year ago. He said government measures to ease restrictions on household demand usually have an effect with some delay, meaning faster consumption growth in 2017.

It was important for Turkey not to enter a “technical recession,” Deputy Prime Minister Mehmet Simsek said in a televised interview after the GDP report. “There’s a moderate recovery in growth in the first quarter. The recovery will accelerate from the middle of the second quarter.”