Türkiye | Mild contraction signals in 3Q GDP

Summary

The moderation in domestic demand continues, while the production side demonstrates a clearer worsening trend in 3Q. We expect GDP growth to be 3.2% and retreat further to 2.7% on restrictive monetary policy, tight financial conditions and expected fiscal consolidation in 2025.

Key points

• Key points:
• Industrial production (IP) declined by 1.6% m/m in August on the back of broad-based weakening in manufacturing, mining and electricity production, resulting in a contraction of 1.5% q/q in 3Q so far but if we exclude bridge days and volatile sectors’ impact, the worsening trend is even stronger (-3%).
• Hard data realizations and leading indicators point to a weaker performance on quarterly trends. The worsening in industrial activity continues, while construction, trade and services might prevent a further deterioration in 3Q. Accordingly, our nowcasts post a quarterly decline of 0.3% in September in line with our expectation, implying 2.5% y/y GDP growth.
• Considering the demand side, private consumption could adjust on the downside in 3Q while investment and net exports could contribute positively on quarterly basis.
• Although the output gap returning to negative in 3Q suggests that cost pressures will ease on inflation, the slow adjustment of the imbalance between demand and supply may keep demand-driven inflationary pressures alive. Persistently high inflation expectations and the elevated inflation trend may require the Central Bank (CBRT) to remain prudent for longer depending on the inflation developments in 4Q.
• The tight monetary policy maintaining macro-prudential measures like credit growth caps, and fiscal policy becoming tight next year could put downward pressure on the growth outlook in the near future. Therefore, we expect GDP growth to be 3.2% in 2024 and to decline to 2.7% in 2025.

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