Türkiye | Weaker production with still strong demand

Turkish economy grew by 3.8% in 2Q23 in annual terms slightly above the market consensus of 3.5% (vs. our expectation of 4.5%), which corresponds to 5% GDP growth if the calendar day adjustment is made. We expect GDP growth to materialize in the range of 4% to 4.5% with a high probability.

Key points

• Key points:
• On the expenditure side, domestic demand boosted by private consumption made a significant contribution, led by brought-forward demand on top of extraordinary loose policies ahead of the elections in May, while foreign demand contributed more negatively to growth due to acceleration in imports together with weaker exports.
• On the production side, services continued to pioneer, whereas industrial sector decelerated to 0.1% q/q in 2Q (vs. 1.4% q/q in 1Q) and contracted by 2.6% in annual terms subtracting 0.5pp from 2Q GDP growth.
• On the income side, after declining trend for a while, the recent high adjustment in wages and the early retirement payments have led the share of wages in the overall value-added to recover from 21% in the 2Q22 to around 28.4% in the 2Q23 while the net operating surplus declined to 42% from 50% in 2Q22.
• Our monthly GDP indicator nowcasts an annual growth of 6.2% in July (32% of information) and 5.1% in August (27% of information), showing boosted annual figures thanks to favorable calendar day impact in 3Q.
• The current positive momentum of activity, ongoing recovery efforts in the quake region and the Government’s efforts to achieve a soft landing pattern with gradual normalization steps in policies will be supportive on growth in the near term.

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