Türkiye | Fast deceleration in economic activity

Turkish economy grew 3.9% y/y in 3Q22 (vs. 4% expected and 4.4% market consensus). We nowcast an annual GDP growth rate of 2.8% as of November, which puts a slight downside risk on our 2022 GDP growth forecast of 5.5%. We forecast 2023 GDP growth to be 3% with the expected boost in the first half of the year.

Key points

• Key points:
• Services remained as the main driver of annual GDP growth (with 4.5pp contribution to annual GDP), which was supported by trade, transportation and accommodation (1.7pp) and financial activities (0.9pp).
• On the expenditures side, conribution from both domestic and external demand decelerated in 3Q.
• Aggregate demand remained stronger than aggregate supply so inventories continued to be depleted (-9.5pp impact on annual growth).
• The downward pressure on exports from poorer external demand and too much sterilization of TL liquidity led by the recent regulations have resulted in much faster than expected deceleration in economic activity so far.
• Given the Government’s priority to boost growth and employment, we expect more counter-cyclical policies ahead of the elections, including some ease in credit conditions, potential new credit packages or other campaigns in order to reverse the recent deceleration in activity.

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