Inflation, Lira weigh on Turkey GDP in 2023
ALBAWABA – The Turkish Statistical Institute posted 4 percent year-on-year growth in the Gross Domestic Product (GDP) of Turkey in the first quarter of the year 2023 (Q1-2023) on Wednesday.
Compared to the last quarter of the year 2022, Turkey GDP also grew by 0.3 percent, the institute reported.
According to Bloomberg, the growth in the first three months of the year was bolstered by pre-election spending and strong household consumption.
Nonetheless, Bloomberg’s analysts forecast a median GDP growth rate of 3.5 percent in 2023, and a quarterly 0.5 percent, as Turkey's economy is expected to slow throughout the rest of the year.
Fiscal stimulus and ultra-low interest rates helped ease the impact of the two catastrophic earthquakes that hit southeast Turkey in February.
This explains the better-than-expected growth results.
However, Turkey is facing significant challenges under the rule of three-time President Recep Tayyip Erdogan, as he battles high inflation and rising cost of living.
The Turkish lira has plunged to record lows after the election, losing over 3 percent of its value against the dollar since then. It was trading more than 1 percent weaker after the GDP data release at 10:13 a.m. in Istanbul, Bloomberg reported.
Turkey was the fastest-growing economy in the Group of 20 last year, after Saudi Arabia and India. Turkey’s growth rate exceeded 5 percent in 2022, according to the New York-based news outlet.
Erdogan’s administration fuelled this growth with low-cost lending and heavily subsidized utility bills, as well as increases in the minimum wage and pensions.
However, the president’s policies, came at the expense of currency and price stability, with inflation peaking near 86 percent last year, but later dropping to around 44 percent in 2023.
Household consumption is estimated to account for more than half the economy, according to Bloomberg, and has grown 16.2 percent year-on-year in the first quarter.
Meanwhile, wages and salaries also increased by 126 percent in Q1-2023.
With victory secured, Erdogan’s officials are set to shift their focus to widening deficits in the budget and the current account, Bloomberg indicated.
Conflicting reports on Turkey GDP outlook
Looking forward, economic growth will drop to 1.6 percent year-on-year in Q2, according to a Bloomberg survey of analysts, and to 2.7 percent for 2023 as a whole.
But the World Bank (WB) estimated economic growth in Turkey will drop to 3.2 percent in 2023, according to Turkish news outlet Hurriyet Daily News.
For the years 2024 and 2025, the WB forecast a 4.3 and 4.1 percent growth rate, respectively, the news outlet reported.
In the meantime, the European Bank for Reconstruction and Development this month cut Turkey’s 2023 GDP growth estimate to 2.5 percent, from 3 percent.
The bank’s report cited external vulnerabilities over pressure on the lira and a massive current-account deficit, as reported by Bloomberg.
