Social Network

Economy

ANALYSIS: Turkey’s 3Q19 growth is weak and not promising

The government's heavy intervention to turn around the contraction phase seems to be useful to the point of posting a mere 0.9% GDP growth as of 3Q19.  The marginal cost is very high of course as the rate cuts since July leaves the Turkish lira vulnerable to global volatility and the fiscal deficit expanded to above 4% of GDP.  The fact that as household consumption is weak at 1.5% while capital investments remain in the negative territory combined with negative contribution to growth from net exports; combine to spell weak future growth into 2020.

ANALYSIS: Turkey’s 3Q19 growth is weak and not promising

Turkey’s economy has been contracting for three consecutive quarters in yoy comparisons.  As of 3Q19, the official data shows Turey’s GDP posted 0.9% growth compared with the same quarter of previous year.  On seasonally and calendar adjusted basis GDP growth is 0.4% compared with the previous quarter which points at a loss of momentum as it was 1.0% in the second quarter and 1.7% in the first quarter.

Growth  was 3.8% in the agricultural sector following +4.2% and 2.7% respectively in the previous two quarters.

There was 1.6% growth in the industry sector which was -2.6% in the second quarters and -3.9% in the first quarter.

The construction sector remains in the contraction phase posting -7.8% as of 3Q19 that follows -12.4% in 2Q19 and -9.2% in 1Q19.

Growth was 0.6% in the services sector (wholesale and retail trade, transport, storage, accommodation and food service activities) compared with the same quarter of the previous year in the chained linked volume index which was -0.1% and and -3.4%, respectively in the previous two quarters.

Household consumption was up 1.5% after two dismal performances of -1.0% in the previous quarter and -4.9% in the first quarter of the year. The breakdown shows zero growth for durable goods; +3.4% growth for semi-durable goods and thanks to a strong tourism season +6.4% for the services sector.

The biggest contribution to growth came from the public side as the government final consumption expenditure increased by 7% which is significantly above the 3.4% growth it posted in 2Q19 while the government spending was up 6.6% in the first quarter on yoy basis.

What is the most distracting among the data details is the 12.6% contraction at gross fixed capital formation which follows -22.4% in the previous quarter and -12.1% in 1Q19.

Among the eye-catching changes was the growth of import at 7.6% in the third quarter which was not compensated by the 5.1% yoy growth of exports.  Thus,  as export growth  kept losing momentum since the start of the year (+8.9%, +8.1% and 5.1%) there was turnaround in imports (-29.4%, -17.0% and +7.6%) nonetheless rapidly as Turkey switched to weak but still positive growth of 0.9%.

The bottom-line and prospects

The government’s heavy intervention to turn around the contraction phase seems to be useful to the point of posting a mere 0.9% GDP growth as of 3Q19.  The marginal cost is very high of course as the rate cuts since July leaves the Turkish lira vulnerable to global volatility and the fiscal deficit expanded to above 4% of GDP.  The fact that as household consumption is weak at 1.5% while capital investments remain in the negative territory combined with negative contribution to growth from net exports; combine to spell weak future growth into 2020.

The AKP government having with its growth forecast to 5.0% for 2020 means that fiscal deficit will continue upwards or the 5.0% GDP target will not be attained.  The balance sheet problems of the real sector should be addressed in a serious manner for growth prospects to widen; thus either the government would have to deal with the mentioned problem along with the required extra funding to solve the problem or would have to settle with below 5.0% GDP growth in the years ahead given that fiscal resources that includes public bank cheap lending are limited in nature when economic recovery is- as it is- a very slow and painful process.

GA.

 

Banner

Related News

Related News