The initial indicators from the first quarter of the year point to around 6% economic growth, Turkey’s Treasury and Finance Minister Lütfi Elvan said Friday, adding that he expected this trend to continue with the support of external demand.
Elvan said the data indicated growth despite the tightening of the financial conditions as well as market volatilities.
“When we examine the composition of growth, we see a path that is consistent with our sustainable and quality growth goal in which domestic and external demands are more balanced,” the minister told the general assembly of The Banks Association of Turkey (TBB).
“Our forecasts are that this trend will continue, and foreign demand will contribute strongly to growth,” he added.
The economy is expected to have expanded by 6.7% in the first quarter, better than earlier forecasts, as coronavirus pandemic lockdowns were careful to avoid key sectors, according to a Reuters poll Wednesday.
President Recep Tayyip Erdoğan himself on Wednesday said preliminary figures indicate that the gross domestic product (GDP) data would showcase strong economic growth in the January-March period.
The Turkish Statistical Institute (TurkStat) will announce the GDP data for the first quarter on Monday.
Elvan said the first four-month data showed an all-time high in exports, also stressing that data on capital goods production and imports also indicated a continuing trend of growth in investments in machinery and equipment.
Policies are shaped to ensure a strong, healthy and sustainable growth path, the minister said.
“We will not back down from our medium and long-term goals for the sake of short-term gains,” Elvan stressed.
Turkey’s economy was one of only a few globally to expand despite the pandemic last year as it grew by 1.8%.
While the country imposed new coronavirus measures at the end of last year that hit some services, they did not impede manufacturing and other sectors and most were lifted in March.
Economic activity is expected to slow in the second quarter due to tighter financial conditions and a full lockdown imposed in the first half of May.
But the economy is still estimated to log double-digit GDP growth on annual basis due to the sharp contraction last year when initial coronavirus fallout led to a contraction of 10.3% in the second quarter.
Turkey last week eased restrictions as it emerged from the full lockdown but kept the overnight and weekend curfews in place. The government looks to lift measures more significantly as of June.
Elvan further said the government’s priorities are price stability, keeping the current account deficit under control and bolstering the labor market.
Elvan informed that pandemic support from the central government budget has so far reached TL 79 billion ($9.1 billion) and that another TL 40 billion will be spent through 2021, bringing total direct aid to TL 109 billion.
Turkey will have injected more than 3% of its GDP into the economy as pandemic relief when taking into account funds from the central government budget and institutions such as the government’s unemployment fund, Elvan said.
Considering all the funds as a whole, a total of TL 136 billion has been spent to date, he noted.
“This amount will reach about TL 183 billion by the end of the year, or 3.2% of national income,” he added. “We have revised our budget deficit target to 3.5% from 4.3% for this year.”
“We are committed to making any expenditures that may be necessary due to the pandemic.”
Some TL 55 billion has been provided to around 9.5 million citizens through multiple practices, the minister noted, including the wage support program for employees of companies that have been hit by the outbreak, unemployment benefits, cash aid and normalization support mechanisms.
Elvan said they have a holistic view when it comes to the fight against inflation. Consumer inflation rose above 17% in April.
“We will continue to support monetary policy with our fiscal policies. Of course, we are also closely monitoring credit development,” he noted.
The minister said the government will not compromise on opting for “macro-prudential measures” in the financial sector if necessary.
Separately, the World Bank country director for Turkey, Auguste Tano Kouame, Thursday said last year’s growth “is actually a very important growth rate for large economies.”
“Many countries have been grappling with the effects of this crisis. The global economy shrank by 4.3% last year, if you exclude China, we are talking about a 5% shrinkage,” Kouame told a World Bank panel Thursday.
David Knight, a senior economist at the World Bank, said although Turkey was seriously affected by the pandemic, the overall economic performance was very good throughout 2020.
A strong economic rebound this year hinges on “robust” monetary policy given high inflation and the potential for external shocks as the U.S. Federal Reserve (Fed) considers when to cut stimulus, Knight said.
He said the World Bank expects 5% economic growth this year driven by a recovery in exports and 15.5% average inflation over the course of 2021.
The country’s growth should return to about 5.5% this year, according to the Reuters poll.
Knight and Hakan Kara, former chief economist at the Central Bank of the Republic of Turkey (CBRT), said a willingness to keep interest rates sufficiently high will be necessary to defend the economy from a shift to tighter U.S. monetary policy.
The policy interest rate, at 19%, is “appropriately” set and a “robust” monetary policy will be necessary to maintain growth, he said.
“Monetary policy does not look tight enough to contain (Turkish) inflation expectations at this point,” said Kara, who is now at Bilkent University in Ankara.
As the world emerges from the pandemic, global inflation has risen and pushed up U.S. bond yields. That, in turn, threatens to pull funds from emerging markets such as Turkey.
"Earlier than expected (monetary) tightening in advanced economies is the most serious risk for Turkey because the inflationary pressures are mounting across the globe," said Kara.