Turkiye’s early-2023 GDP growth to slow as economic woes mount

Battle ahead: Customers use ATMs in Ankara. The Turkyish economy was boosted at the start of the year by pre-election spending, but will probably be tougher for the rest of the year as the newly re-elected president battles a cost-of-living crisis. — Bloomberg

ISTANBUL: Turkiye’s economy was boosted at the start of the year by pre-election spending and strong household consumption. The rest of 2023 will probably be tougher as the newly re-elected president battles a cost-of-living crisis.

Gross domestic product (GDP) probably grew 3.5% year-on-year in the first quarter and 0.5% from the previous period, according to a Bloomberg survey.

Financial stimulus and lower interest rates helped ease the economic impact of two massive earthquakes in southeast Turkiye in February.

The data, scheduled to be released this week, will come following Sunday’s run-off in Turkiye’s presidential election. Recep Tayyip Erdogan defeated Kemal Kilicdaroglu to extend his rule into a third decade.

The country was the fastest-growing economy in the G-20 last year after Saudi Arabia and India, rising more than 5%. Erdogan’s administration fuelled that expansion through cheap lending and heavily subsidised utility bills, as well as increases in the minimum wage and pensions.

Those moves and ultra-loose monetary policy have come at the expense of currency and price stability, with inflation peaking at 86% last year.

It’s decelerated but is still as high as 44%, more than anywhere in the G-20 except Argentina.

“We expect the year-on-year GDP growth reading to be 4.8% for the first quarter of 2023 (1Q23), following 4Q22’s 3.5%,” said economist Selva Bahar Baziki.

“That reflects pre-election and earthquake-related spending, along with a quick recovery in disaster-struck areas. Consumers front-loading their purchases as they face persistently high inflation was also one of the factors.”

With victory secured, Erdogan’s giveaways are expected to pause as his officials shift their focus to widening budget and current-account deficits.

Growth will dip to 1.6% in 2Q year-on-year, according to a Bloomberg survey of economists, and to 2.7% for 2023 as a whole.

“We expect the policy to tighten in the second half, leading to a slowdown in growth,” said Goldman Sachs Group Inc economists, including Clemens Grafe.

They cited a decline in foreign reserves and a current account deficit of more than 6% of GDP in the first quarter. — Bloomberg

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