GDP growth will probably be around 5.5% this year, exceeding the government target of 4.4%, Turkish Economy Minister Nihat Zeybekci said on September 11 after the latest data showed that the Turkish economy expanded at 5.1% y/y in the second quarter of 2017.
Balanced growth, driven by domestic and external demand, continued in the quarter and the TRY250bn ($72.3bn) credit guarantee fund (CGF) began to support economic activity from Q2, Deputy PM Mehmet Simsek commented in a statement. Some analysts have questioned the viability of the explosion of soft lending engineered with the CGF, but such concerns were not about to restrain confident Turkish ministers yesterday, with Simsek claiming leading indicators for the third quarter are showing that strong economic growth is gaining momentum.
The economic confidence index moved up by 2.5% y/y to 106 in August, reaching its highest level since July 2012. The manufacturing PMI touched a 77-month high of 55.3 in August while the calendar-adjusted industrial production index gained 14.5% y/y in July.
In July, the country’s foreign arrivals figure soared 46.4% y/y to 5.1mn in July, representing the sharpest rise in more than a decade.
“The strength in exports and investments constituted the main drivers of growth, while private consumption and especially public consumption lost momentum. Investments expanded 9.5%y/y and contributed 2.9 percentage points to growth in 2Q…net exports contributed 1.7 percentage points to growth in 2Q,” Yarkin Cebeci at J.P. Morgan wrote in a September 11 report.
Cebeci, however, expects economic activity to lose pace as the government-introduced stimulus measures expire and as the impact of the CGF fades away.
“Some of the fiscal easing introduced in the first months of the year will likely be reversed in the second half and this could be a drag on growth. Given that growth has been so strong and that there are no elections until the local elections in March 2019, the need for fiscal easing is quite limited,” Cebeci said in the note.
The investment bank has revised up its 2017 GDP growth forecast for the Turkish economy to 5.3% from 4.6%. Its 2018 forecast is unchanged at 3.1%.
“As the measures undertaken by the policy makers continue to provide a boost to the economic activity, growth performance is expected to continue to be strong also in the third quarter of the year,” Turkey's Isbank wrote in a research note.
“For the rest of the year, we anticipate that private consumption will preserve its momentum and net exports will continue to make a positive contribution to growth albeit lower than the first two quarters.”
Isbank estimates that the Turkish economy will expand by around 5% in 2017, close to its long-term average growth rate.