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Turkey’s economy likely grew 3.5% in Q2, seen up 2.9% in 2023

Turkey’s economy is expected to have expanded 3.5% in the second quarter of 2023, thanks to fiscal stimulus ahead of May elections and recovery after February’s earthquakes, a Reuters poll showed on Tuesday, while full-year growth was seen at 2.9%.

Until the election, Turkey’s central bank had implemented a long-running low-rates policy as President Tayyip Erdogan prioritised growth, exports and investment over bringing inflation down.

Those cheap borrowing costs as well as fiscal stimulus ahead of the vote are expected to have supported growth in the second quarter.

Sharply tighter monetary policy after the election is expected to lead to a slowdown in the remainder of 2023.

The median estimate in a Reuters poll of 12 economists for second quarter gross domestic product stood at 3.5%, with forecasts ranging between 1% and 8%.

Economic activity in the first quarter was affected by massive earthquakes that hit the country’s south and southeast, killing more than 50,000. Reconstruction efforts are expected to cost more than $100 billion.

Goldman Sachs said growth in the second quarter accelerated largely due to pre-election fiscal stimulus and the recovery after the earthquakes. It said household consumption remained strong, while growth in industrial production and exports weakened in that period.

Erdogan reversed his unorthodox economic policies after he extended his rule into a third decade by winning the presidential election.

The central bank has since tightened its policy rate by 1,650 basis points, which is expected to impact growth in the coming quarters. Ankara has also hiked various tax rates, which is expected to have an inflationary effect.

“Policy, both monetary and fiscal, has shifted significantly tighter … and we expect the Turkish economy to enter a recession in H2,” Goldman Sachs said, adding that its forecasts are below the consensus.

The median estimate of 20 economist for growth in 2023 stood at 2.9% in the Reuters poll, with forecasts between 1.7% and 4.5%.

Turkey’s economy bounced back strongly from the COVID-19 pandemic and grew 5.6% in 2022, extending its hot streak on strong domestic demand and exports. That was despite a slowdown in growth for its main trading partners due to the Russia-Ukraine war, which hurt exports in the second half of the year.

The Turkish Statistical Institute will release Q2 growth data at 0700 GMT on Aug. 31.
Source: Reuters (Reporting by Ezgi Erkoyun;Writing by Ali Kucukgocmen;Editing by Conor Humphries)

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