After three quarters of contraction, Turkish economy enters path of growth

Published 02.12.2019 10:09
Updated 03.12.2019 00:25
After three quarters of contraction, Turkish economy enters path of growth

In proportion to market expectations, the Turkish economy registered a 0.9% growth in the third quarter for the first time in 2019 and is likely to post a 5% growth in the last quarter of the year

In the wake of three consecutive quarters of recession, the Turkish economy has entered a promising era of growth in the third quarter of this year, registering a 0.9% expansion compared to the same period last year, Turkish Statistical Institute (TurkStat) data showed Monday.

According to Turkey's statistical body, gross domestic product (GDP) at current prices in the country reached TL 1.15 trillion ($201.9 billion) this July-September. The figure rose 11.5% from TL 1 trillion in the same quarter last year.

In an evaluation on the economic growth data, Treasury and Finance Minister Berat Albayrak stressed that the leading indicators for the fourth quarter suggest that Turkey's economy continues to maintain this growth trend. "To achieve the 5% growth target, we will focus on boosting industrial value added, accelerating recovery in investments and strengthening sectors focused on production and employment," Albayrak said in a tweet.

"The annual growth in industry on the back of declined costs via the success of the balancing period, rising confidence indices, and the effects of the transformational process is important," the minister added.

The new economic program for 2020-2022 announced on Sept. 30 targets a 5% annual growth rate for each of the next three years.

Industry and Technology Minister Mustafa Varank also pointed to the role of the recovery in domestic demand in the 0.9% growth figure. Industrial output and orders, capacity usage, and confidence in the economy all rose, Varank wrote on Twitter. "We are working hard to achieve stronger production-led growth," he added.

The sectoral breakdown of the economic activity in the third quarter demonstrated that the total value added surged by 3.8% in the agricultural sector and 1.6% in the industry sector, while the construction sector contracted by 7.8%. The services sector's value added – wholesale and retail trade, transport, storage, accommodation and food service activities – rose 0.6% during the same period.

TurkStat data also showed that seasonally and the calendar-adjusted gross domestic product went up by 0.4% in the third quarter compared to the previous quarter.

QNB Finansbank said in a note that private consumption was the major driver of growth quarter-on-quarter, but its contribution had weakened. The bank revised its 2019 growth forecast to 0.6% from 0.8% after the data, and saw year-on-year growth for the fourth quarter as likely to be above 4%.

"The economic confidence index and its components suggest a broad-based recovery in economic activity in the fourth quarter," the QNB Finansbank note read.

A business survey Monday showed Turkish manufacturing activity contracted in November as new orders slowed although output picked up. The Purchasing Managers' Index (PMI) for manufacturing rose to 49.5 from 49.0 in October, said the Istanbul Chamber of Industry and IHS Markit.

Moreover, Turkish consumers' confidence in the economy increased for the second month in a row in November, surging 5.2% to 59.9 points. The manufacturing industry used 77.2% of its capacity in November, its highest level in the last 15 months, the Central Bank of the Republic of Turkey (CBRT) reported last week.

Economists forecast 5% in Q4

The economists drew attention to the fact that third quarter-growth data was in line with market expectations, stressing that the Turkish economy could expand by 5% or more in the last quarter of the year.

Anadolu Agency Finance Analyst Haluk Bürümcekçi said the sustainability of the growth performance will be determined by to what extent the loose monetary policy will be permanent, and how much the credit expansion in banks will be preserved as well as the conditions of the external demand.

"With the base effect coming online in the third quarter of this year, we have seen visible improvement in economic growth," he said and continued, "The ameliorating conditions supported by the base effect and the growth momentum will continue in the last quarter of the year and we could see a growth rate around 5%."

While the financial and monetary conditions will play a crucial role in the performance of the growth in the upcoming period, the slowing external demand due to the stagnating economies in the eurozone – Turkey's number one export destination – constitutes a downward risk.

The year-on-year inflation rate dropped to its lowest level in nearly three years in October to 8.55%. The declining inflation rate is attributed to a more stable lira, after inflation topped 24.24% in October 2018 following high volatility in the currency.

With mitigated consumer prices, the central bank has slashed its benchmark interest rate, which stood at 14% in October, to revive the economy and took a number of other measures to increase the money supply in the market and ensure credit expansion.

The government launched a loan program to support export-oriented sectors in May. The Advanced, Productive, Indigenous, Industry (IVME) Financing Package has so far provided TL 40 billion for enterprises that aim to increase their exports, Minister Albayrak said Monday.

Year-end growth at 0.6%

Virtus Global Managing Partner İnan Sözer argued that the Turkish economy is likely to grow 5.5% in the last quarter of the year, per preliminary indicators. "Following the financial turmoil of August 2018, the supportive global conditions and precautions taken by public authorities have enabled the Turkish economy to record a performance exceeding estimates at the beginning of this year," he said and noted that the annual growth rate is likely to be at 0.6%.

Sözer underscored that the critical aim in the near future is to improve investor's perception of the Turkish economic environment and restore the conditions the country had in early 2018. "That's how the economy can reach a 5% growth rate – a level that will reduce unemployment," he added.

Borsa Istanbul hits year-high

The benchmark index of Borsa Istanbul, Turkey's main stock exchange, reached the highest annual level during Monday's trading session. BIST 100 hit over 108,000 points following the release of quarterly growth data. The index was trading at 108,135 points at 5:46 p.m. on Monday with a premium of 1.15%.

The positive outlook in the global markets and the 0.9% growth data in the third quarter of the year led to a rally in Turkish stocks. Borsa Istanbul stocks rose nearly 9% in November, seeing the most powerful November performance in the last 14 years. The middle and long term expectations for the stock market point to a positive outlook.

The Turkish lira was also trading at 5.75 per dollar during the same time and the currency market focused on inflation data to be released on Tuesday.

The stability in the bond yields also continued Monday. The yield in 10-year government bonds fell by 4 basis points and dropped to 12.4%. The 2-year bonds saw a 5-basis point rise and closed the trading session at 12.19%.

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