Despite the good data for Turkey’s GDP, which exceeds market forecasts, Turkish economy is expected to cool down from the fall.
Turkey’s economy grew by 7.6% year-on-year during the second quarter of 2022, according to official data published today, exceeding economists’ expectations and improving the economic data from the first quarter, in which the GDP of the Eurasian country had grown to 7.3% driven by exports and strong domestic demand.
The forecasts made by several economic analysts had estimated on average that the Turkish economy would grow around 7.5% during the second quarter, so the GDP data is better than expected; however, economic indicators seem to point towards a cooling of the economy from the second half of 2022, largely due to the fall in internal demand but also due to the slowdown in the EU economies, mainly in Germany, one of Turkey’s great trading partners.
In fact, the Turkish Central Bank has been cutting interest rates despite the inflation hikes to try to maintain the stimulus to Turkey’s economy: the last one less than a month ago, by 100 basis points. “It is important that financial conditions continue to support the maintenance of the growth momentum in industrial production, and the upward trend in employment,” the bank explained at the time.
Turkey’s economy was, together with China, the only one that grew during the pandemic among the G-20 countries; however, the crisis in supplies and the rise in the prices of raw materials and energy, aggravated by the war in Ukraine, has finally triggered inflation to limits not seen in decades. At the end of July, the Turkish Central Bank estimated that the CPI would reach 90% in the third quarter before falling, and its own inflation forecast for the end of the year is already over 60%, a figure that probably may have to be revised upwards again.
The maintenance of low interest rates, good for stimulating the growth of the Turkish economy but disastrous for containing the rise in prices, is vital to maintain Erdoğan’s economic policy, which seeks an economic model based on production and foreign investment, supported by a very young and educated population. At the end of 2021, the Turkish president compared his growth strategy with that of China, stressing that Turkey can also produce cheap goods and sell them to other countries, thereby receiving foreign exchange and reducing the deficit.
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Edited and reviewed by:
Pablo Gómez is a specialist in Turkey and has been editor-in-chief of Hispanatolia since 2011. He has been analysing current affairs and geopolitics in Turkey and the surrounding region since 2006.
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