Economic Growth in Turkiye
Turkiye’s economy has shown resilience in the second quarter, despite the central bank’s emergency interest-rate hike in March. The country’s gross domestic product (GDP) expanded by 1.6% on a quarterly basis, which is higher than the expected 0.6% growth. This growth is a significant improvement from the previous quarter, which saw a revised 0.7% expansion.
Quarterly and Annual Growth
The GDP growth rate for the second quarter is 1.6%, which is higher than the median estimate of 0.6% in a Bloomberg survey of economists. In terms of annual growth, the economy expanded by 4.8%, compared to the median estimate of 4.1% and a revised 2.3% in the preceding quarter. The higher annual growth rate is largely due to the increased number of working days in Turkiye this year compared to 2024.
Domestic Demand and Interest Rates
Domestic demand has been the main driver of Turkiye’s economy, and it climbed at the fastest pace in more than a year, leading to a surge in annual growth. Household spending, which accounts for a significant portion of the economy, rose by 5.1%, the highest rate since the first quarter of 2024. The central bank had raised interest rates in March to mitigate market fallout, but it resumed cutting rates in July, lowering the main policy rate to 43% from 46%.
Investment and Exports
Gross fixed capital formation, a measure of investments by businesses, increased by nearly 9% in the second quarter from a year earlier. Exports of goods and services also rose by 1.7% from a year earlier, and up from 0.1% in the prior quarter. These increases have contributed to the overall growth of the economy.
Inflation and Interest Rates
While the strong growth data may suggest that the central bank should maintain high interest rates, some economists believe that the bank will continue to cut rates amid falling inflation. The August inflation figures, which will be released soon, will provide a better sense of the inflation trend. However, the current GDP report suggests that the central bank may not lower interest rates as quickly as expected.
Market Reaction
The Turkish lira was little changed after the data release, trading 0.1% higher at 41.1182 per US dollar. The market reaction was muted, as investors await further data releases and the central bank’s next move on interest rates.
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Conclusion
In conclusion, Turkiye’s economy has shown resilience in the second quarter, with a higher-than-expected GDP growth rate. The growth is driven by domestic demand, and the central bank’s decision to cut interest rates may continue amid falling inflation. However, some economists warn that the strong growth may prevent the current account deficit from narrowing further and inflation from falling as quickly as policymakers want. The upcoming inflation figures and the central bank’s next move on interest rates will be closely watched by investors and economists.
