Türkiye | Deceleration in economic activity in 2Q24

After the strong growth performance (2.4% q/q) in 1Q24, our monthly GDP indicator nowcasts 0-0.5% quarterly growth in 2Q24. Considering the strong performance of 1H24, risks start to be tilted slightly to the upside for our 2024 GDP forecast of 3.5%. Yet, lagged effects might put 2025 GDP growth under pressure.

Key points

• Key points:
• Production is more clearly decelerating in late 2Q24 so the positive output gap is declining. Yet, the partial normalization in aggregate demand so far prevents a faster adjustment in inflation trend and import demand, keeping inflation expectations divergent from the targets.
• The seasonal and calendar adjusted industrial production data for April contracted by 4.9% m/m due to the negative impact of bridge holidays. Excluding the negative impact of high volatile sectors and the bridge day, the decline in the industrial production was much more modest. Turnover indices also pointed out downside adjustment in other sectors except services in April.
• Leading data indicates that economic activity will moderate further in the coming months on the retreat in capacity utilization rate, further fall in manufacturing PMI and the decline in intermediate goods imports in May.
• The adjustment between aggregate demand and supply has been very slow so far. More fiscal consolidation effort and the additional demand restrictive macroprudential policies would be supportive to get faster normalization in domestic demand and not to lose time to start anchoring inflation expectations towards the targeted levels.
• The effectiveness of policy mix would be determinant factor on growth outlook in the near future. We think the risks start to be tilted to the upside for our 2024 GDP forecast of 3.5% and to the downside for our 2025 GDP forecast of 3.5%.

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