Turkish economy grew 2.1 pct in Q3, under expectations

Turkey's economy grew by a modest 2.1% in the third quarter, falling short of expectations. Official data revealed a slowdown in demand, particularly in the services sector, reflecting the strain of high interest rates on economic activity.

Saturday November 30 2024 02:36 am

Reuters

Turkey's economy grew at a less than expected 2.1% in the third quarter as demand ebbed - especially in the services sector - under the weight of high interest rates, data showed on Nov. 29.

Third-quarter gross domestic product (GDP) dipped by 0.2% from the previous quarter on a seasonally and calendar-adjusted basis, Turkish Statistical Institute (TÜİK) data showed, marking a second straight dip and a technical recession in Turkey.

GDP Percentage Rate in the past three years, taken from the TÜİK's report.

The major emerging market economy has cooled in the face of a monetary tightening campaign that began in June 2023, with the central bank having hiked rates to 50% from 8.5% in order to rein in inflation, which exceeded 48% last month.

Slower than forecast economic activity in the third quarter could reinforce growing expectations of a rate cut in December.

In a Reuters poll, the economy was forecast to have expanded 2.6% in the quarter due to slower domestic demand. Full-year growth is seen at 3% based on the poll's median, compared to the government's 3.5% forecast.

Services-related activity pulled overall GDP lower in the third quarter, while construction and financial services remained elevated on an annual basis, the data showed.

GDP, Percentage change by branches of economic activity during Q3 of 2024, taken from the TÜİK's report.

Annual growth in the second quarter was revised down to 2.4% from 2.5%.

Turkey's trend GDP growth has been between 4%-5% in recent years, though the rate has cooled throughout 2024. Finance Minister Mehmet Şimşek said on Nov. 29 that economic activity would bounce back in the second half of next year.

Nicholas Farr at Capital Economics said the contraction from previous quarters "suggests that policymakers' efforts to weaken demand and tame high inflation are taking effect."

The government predicts overall GDP growth of 4% next year as part of its campaign to end years of soaring inflation and to adjust the composition of economic growth to more sustainable settings.

The central bank said separately on Nov. 29 that tight financial conditions have helped rebalance domestic demand.