Author: Ezgi Erkoyun
ISTANBUL (Reuters) – Turkey’s economy grew 5.7% in the first quarter, in line with expectations, driven by strong domestic demand, official data showed on Friday.
Growth is expected to slow for the rest of the year as central banks sharply tighten monetary policy amid soaring inflation, weighing on economic activity.
According to a Reuters survey, the economy is expected to grow by 3.15% in 2024. Forecasts released in September showed the government expected the economy to grow 4% this year.
Finance Minister Mohammad Simsek said the country will move towards more balanced and sustainable growth this year thanks to rules-based, predictable policies.
“Second quarter indicators indicate that the economy continues to remain balanced. We expect balanced growth in 2024, with a positive contribution from net foreign demand,” Simsek said in a statement.
Despite a slowdown in major trading partners and a devastating earthquake in February, Turkey’s economy is expected to grow at an annual rate of 4.5% in 2023 and 4% in the first quarter.
The central bank has raised policy rates by a total of 4,150 basis points in its tightening cycle since June last year, with the most recent hike in March citing a worsening outlook for inflation. It has since kept its benchmark interest rate steady and vowed to take action if the inflation outlook worsens.
Annual inflation is expected to hit around 75% this month, according to a Reuters poll and central bank data. A decline is expected in the second half of the year due to policy tightening. In April, the annual inflation rate was 69.8% compared with the same period last year.
Economists said strong growth ahead of local elections on March 31 was fueled by an annual minimum wage increase and households bringing forward purchases in anticipation of rising inflation.
Data from the Turkish Statistics Institute showed that even with tightening monetary conditions, gross domestic product (GDP) still increased by 2.4% in the first quarter compared with the previous quarter after seasonal and calendar adjustments.
In the first quarter, the total added value of the construction industry grew by 11.1%, and the information and communications industry grew by 5.5%.
Household final consumption expenditure increased by 7.3%. Data show that during the same period, exports grew by 4% and imports fell by 3.1%.
