Turkey's economy fared much better than its peers in the July-September quarter, in a stronger-than-expected rebound from a contraction in the spring.
Driven by fiscal stimulus and the lifting of virus-related lockdowns, gross domestic product (GDP) grew 6.7% year-on-year in the third quarter, after contracting by 9.9% in the previous three months when lockdowns were imposed to curb the initial coronavirus wave, according to Turkish Statistical Institute (TurkStat) data released Monday.
The burst of growth included a more than 15% jump from the previous quarter on a seasonally and calendar-adjusted basis, the data showed.
Commenting on the data, Treasury and Finance Minister Lütfi Elvan said the increase in domestic demand spurred the GDP growth in the third quarter.
"We do not ignore the risks that may occur," Elvan said on Twitter.
Turkey aims a sustainable economic growth with a policy framework that prioritizes macroeconomic, financial and price stability, he added.
The country outperformed all G-20 nations, including China, whose economy rebounded by 4.9% year-on-year in the July-September quarter.
Eurozone GDP was 4.4% lower in the third quarter. Among other major economies, the U.S., France, Germany and the U.K. contracted by 2.9%, 3.9%, 4% and 9.6%, during that period, respectively.
In addition, South Korea's GDP was 1.3% lower compared to a year earlier, while Chile, Israel and Poland contracted by 10.3%, 1.4%, 1.5%, respectively.
"Turkey posts remarkable 6.7% real GDP growth in Q3, vs 4.8% consensus. Could be zero full-year growth – incredible in COVID-19 year," said Timothy Ash of BlueBay asset management on Twitter.
Financial sector activity soared by 41.1% in the third quarter, information and communication by 15%, industry by 8%, construction by 6.4% and agriculture by 6.2%, the data showed.
The services sector's added value – wholesale and retail trade, transport, storage, accommodation and food service activities – climbed marginally by 0.8% on a yearly basis as it was hit hardest by the outbreak.
Government final consumption expenditure grew 1.1%, while gross fixed capital formation, a measure of investment by businesses, jumped 22.5% in the third quarter compared to a year earlier.
Elvan said steps to further strengthen the country's production and technology infrastructures will be taken.
Among others, household consumption jumped by 9.2% year-on-year in the period.
Exports dropped 22% on an annual basis, after falling 36% in the preceding three months. Imports rose 16% following an 8% drop.
"While the economy struggled with the contraction and stagnation effect of the coronavirus pandemic, the growth-oriented approach that encouraged loan growth was effective in showing high growth performance in the third quarter," said Enver Erkan, an Istanbul-based economist at Tera Yatırım.
Growth well above expectations
The growth figure was well above market expectations.
The median estimate of 14 economists in a Reuter's poll forecast growth of 4.8%. Estimates ranged between an increase of 6.8% and a contraction of 1.5%. The median of 14 forecasts in a Bloomberg survey also forecast a 4.8% growth.
An Anadolu Agency (AA) survey of 17 economists expected a 5% year-on-year growth, with estimates hovering between 3.5% and 6.8%.
In addition, ING projected Turkey's GDP to have risen by 4.5% year-on-year.
The outbreak's October and November resurgence has prompted Ankara to adopt new curfews for weekends and certain age groups, as well as limit the working hours of some businesses, including restaurants, cafes and shopping malls.
The government said the new measures, much less restrictive than those in the spring, will not interfere with supply and production chains.
Ankara sees a growth of 0.3% this year but has said a contraction of 1.5% is possible under a worst-case scenario. It projects a rebound of 5.8% in 2021.
For the full year, the median estimate in the Reuters poll was for the GDP to remain flat, with estimates of 16 economists ranging between 0.6% growth and 5% contraction.
The economists in the AA survey predicted annual growth of 0.3% with estimates hovering between 0% and 1%.
The GDP expanded 4.5% in the first quarter and narrowed by 9.9% in the second due to the pandemic's effects on the economy.
Stimulus, loan growth
To help businesses and consumers amid the outbreak, the government put forth a stimulus package to cushion the fallout while banks ramped up lending.
Loan growth remained robust throughout the summer, slowing toward the end of the third quarter.
In addition, the central bank injected liquidity and delivered rate cuts of 1,575 basis points until it stopped in June.
The Central Bank of the Republic of Turkey (CBRT) on Nov. 19 raised its key policy rate by 475 basis points to 15%, up from 10.25%, and pledged to remain tough on persistent double-digit inflation, which has been stuck near 12%.
After its sharpest monetary tightening in more than two years, the bank also simplified its monetary policy by saying that all funding will be provided through the main policy rate.
"In this period, by supporting loan growth with low interest rates, growth was tried to be balanced, and businesses and consumers were tried to be protected from the pandemic effect. For this reason, financial conditions were kept loose and regulations were applied on banks to enable banks to extend loans," Erkan said.
This situation, he noted, was instrumental in recording strong loan growth throughout the summer, but as a side effect of this, price stability was also damaged and inflation expectations deteriorated.
Erkan said leading indicators such as industrial production, the purchasing managers' index (PMI) showed a strong rebound in the July-September quarter after virus-related restrictions were lifted and amid moves to accelerate the normalization process.
The PMI index increased by 30.3% compared to a previous quarter, the data showed.
Yet, Erkan stressed that while the picture of sectoral data, indicators such as PMI and industrial production points to the strong trend of production activities, service activities could be adversely affected as the virus-induced restrictions come back in the fourth quarter.
"Turkey is also bringing back the coronavirus-induced constraints on effective and may extend the content of closures, which may put more pressure on services," he noted.
At the same time, he continued, with the effect of price stability being prioritized in the fourth quarter, financial conditions are being tightened and the demand effect could diminish. "This would mean neutralizing the impact from credit growth," he added.
The ongoing process seems to bring the fight against inflation to the fore in terms of both monetary and economic policies, Erkan said.
"This will mean that we will not see a growth impact from the credit growth boom in the fourth quarter and the following quarters. Although we predict a growth close to 0% for the whole year, there may be slightly below or slightly higher deviation," he said.
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