Turkey’s economy is bouncing back from a pandemic-induced slump. Looking ahead, private sector representatives stress the importance of qualified investments, which they say would be of crucial importance to achieve sustainable growth.
Their remarks came ahead of data to be released Wednesday, forecasting that the economy grew over 20% in the second quarter, teeing up full-year gross domestic product (GDP) growth in the 7%-8% band as manufacturing and consumption soar.
“We need to step up and continue with investments to ensure this growth is sustainable,” says Şekib Avdagiç, chairperson of the Istanbul Chamber of Commerce (ITO).
Avdagiç stressed the increase in industrial production, which expanded 41.1% year-on-year in the second quarter, and the increase in capacity utilization.
The growth rate expresses more than just a nominal value achieved thanks to the base effect, Avdagiç said, emphasizing it also displayed real and strong output that has been lifted by production, investment and exports.
“A large share behind this strong output belongs to investments in machinery equipment that the business world has engaged in for six consecutive quarters,” he noted.
“But in order for us to maintain this growth, we must continue to increase investments.”
The latest economic confidence index indices show industrialists have a “major investment motivation,” said Erdal Bahçivan, head of the Istanbul Chamber of Industry (ISO).
“This investment appetite must be effectively supported,” Bahçivan noted.
A Reuters poll of 14 economists forecast the Turkish economy to have surged 21.7% annually in the second quarter. This would push the GDP growth to 8% or more for 2021, the poll showed.
Forecasts in an Anadolu Agency (AA) survey were for a 21.8% growth in the second quarter and more than 8% for the whole year.
Avdagiç and Bahçivan both expressed similar forecasts, stressing the momentum backed by the so-called base effect due to a rebound from a steep fall caused by COVID-19 restrictions last year.
The GDP grew strongly, by 7%, in the first quarter. The $720 billion (TL 5.99 trillion) economy grew 1.8% last year, despite a 10.3% plunge in the second quarter, one of only a few globally to avoid an annual contraction amid the pandemic fallout.
This year, the government officially forecasts 5.8% growth, though Treasury and Finance Minister Lütfi Elvan said it could top 8% annually with a robust April-June performance.
President Recep Tayyip Erdoğan has also said the full-year growth could exceed that of the first quarter, driven by the leap in the second quarter.
“If there is no new shutdown or problem due to the coronavirus, the current trend shows that growth in the 8%-11% band is possible without new support,” an economy official told Reuters on Tuesday.
ISO’s Bahçivan also stressed the manufacturing industry's contribution to the growth in the second quarter.
“If the global supply bottleneck eases in the remaining period of the year, this will reduce input supply problems and support production and exports,” he noted.
But he warned of many uncertainties, including the new COVID-19 variants, the course of global monetary policies and geopolitical risks.
“Domestic consumption may slow slightly in the final months of the year. We will probably see lower annual growth rates in the second half because of the base effect. However, the current picture indicates that Turkey can close 2021 with strong growth of more than 7%,” Bahçivan noted.
For growth to be permanent and sustainable, the ISO head stressed the vital importance of price stability and financial stability. Add to that ongoing structural issues such as qualified labor force in the industrial sector, productivity, domestic raw materials and environmental sustainability, all of which Bahçivan said should be resolved.
“As the private sector, our expectations are the regulations that would pull down the costs of both financing and production factors such as investment land, employment, energy and raw materials,” Avdagiç said.
On Friday, August’s inflation reading is expected to stay close to the 18.95% logged in July, driven by consumer demand, Turkish lira depreciation that has raised import costs, and a worldwide rise in commodities prices.
Food, electricity and natural gas price pressures are mounting as economic activity rebounds to pre-pandemic levels, said William Jackson, chief emerging markets economist at Capital Economics.
“We think inflation will remain close to 19% in the coming months and that an (interest-rate) easing cycle is unlikely to commence until the tail end of the year,” he wrote in a client note.
Turkey’s central bank, which holds its next policy meeting on Sept. 23, expects consumer prices to dip to 14% by year-end. The bank has held its benchmark policy rate at 19% for the past five months.
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