Turkey’s economic growth is expected to accelerate in the third quarter (Q3) of the current fiscal year, which is likely to be the strongest quarter of the year. The expectation is on the back of stimulus and strong exports as Turkish goods enjoy competitive price advantage international market due to weaker lira, noted a latest QNB economic commentary on the Turkish economic outlook.
QNB’s 6.5 percent growth projection for Q3 is based upon a historical relationship between its monthly activity indicator of the Turkish economy and Turkey’s real GDP growth.
“Our activity indicator combines three monthly measures: industrial production, retail sales volumes and the lira. Industrial production and retail sales have strengthened further in July and August as a result of the stimulus measures. While the lira, the driver of net exports, has stabilised since the start of the year, but remains supportive for exports,” noted the QNB report.
In the first half of 2017, Turkey’s growth rebounded to 5.1 percent and optimism surrounding the economic outlook is strengthening. Turkey’s leading sentiment survey is at a four year high and portfolio inflows have more than doubled compared to a year earlier. The result is attributable to government stimulus measures and surging export growth. QNB expects these factors to drive a further acceleration in growth to 6.5 percent in Q3, slated to be released next week.
The Turkish authorities have enacted a number of fiscal and credit stimulus measures to support domestic demand. Transfers to households and capital spending have increased and the authorities have cut taxes on some durable goods such as household electronics and property purchases. These fiscal measures have helped partially revive consumption. The biggest boost to the domestic economy in 2017 has come from a government credit guarantee programme which has made approximately $70bn available in loans to Turkish corporates. The result has been a sharp rise in credit to the private sector, growing at 21.5 percent at end-Q2, which in turn, spurred real investment growth of 9.5 percent in the quarter.
The export pickup has come on the back of a weaker lira and robust external demand. The lira’s decline has boosted the competitiveness of Turkey’s manufacturing exports which account for around 75 percent of total exports. Nearly half of Turkey’s manufacturing exports are destined for Europe. Higher-than-expected European growth has been an additional tailwind for the sector. Through the first eight months of the year, Turkey’s goods exports to Europe were up 12.2 percent in value terms compared to 7.6 percent over the first eight months of 2016. Tourism has also rebounded in 2017, partly due to the lira weakness. Tourist arrivals have exceeded their early 2016 levels and pushed service export growth to 7.3 percent through the first eight months compared to a decline of 18.7 percent over the same period in 2016.