Turkey’s economy sees powerful Q2 rebound after last year’s slump

Turkey’s economy grew a massive 21.7 per cent year-on-year in the second quarter, as expected, official data showed on Wednesday, rebounding powerfully after a sharp slowdown a year earlier driven by COVID-19 restrictions.

It expanded 0.9 per cent compared to the previous quarter on a seasonally and calendar-adjusted basis, data from the Turkish Statistical Institute showed. The lira firmed as far as 8.29 after the figures from a close of 8.32.

However, the boom in economic activity is feeding into - and in turn being eroded by - double-digit inflation. August’s inflation reading, due on Friday, is expected to stay close to July’s 18.95 per cent.

Treasury and Finance Minister Lutfi Elvan, commenting on the growth data, stressed the importance of tackling inflation.

“For sustainable and comprehensive growth, low inflation, exchange rate stability and predictability are of critical importance,” Elvan said on Twitter.

The year-on-year economic growth figure was exactly in line with a Reuters poll for the second quarter. The poll also forecast full-year growth of 7.95 per cent, but the latest data was seen prompting some upward revision.

“July-August leading indicators showed that economic activity sustained its momentum in the third quarter,” said Burumcekci Consulting’s Haluk Burumcekci, who raised the full-year growth forecast to 9.3 per cent from 7.7 per cent.

The $720-billion economy grew 1.8 per cent last year, despite a 10.4 per cent plunge in the second quarter, one of only a few globally to avoid annual contraction amid the initial pandemic fallout.

Growth in the second quarter was led by services, which bounced back 45.8 per cent annually, followed by industry growth of 40.5 per cent and information and communication sector expansion of 25.3 per cent.

Slower growth was displayed by the real estate sector, which expanded 3.7 per cent, construction at 3.1 per cent and agriculture at 2.3 per cent.

Separate data on Wednesday reinforced the picture of continuing expansion, with the Purchasing Managers’ Index (PMI) for manufacturing rising to 54.1 in August from 54.0 a month earlier.

Turkey re-imposed curfews, weekend lockdowns and restaurant closures this year, including a tougher but brief lockdown in April and May due to surging COVID-19 cases. Manufacturing and the broader economy were largely unaffected by the measures, which were lifted in June.

The government officially forecasts 5.8 per cent growth this year, though Elvan has said it could top 8 per cent annually with a strong Q2 performance.

Turkey’s economy, which has expanded 5 per cent on average over the last two decades, has languished well below those levels for the last few years.

Meanwhile, Turkey’s lira firmed 0.3 per cent against the dollar after data showed the economy grew a massive 21.7 per cent year-on-year in the second quarter, while PMIs showed factory activity grew in August.

In Poland, manufacturing grew but at a slower pace. The Polish zloty stayed close to eight week highs against the euro.

MSCI’s index of EM currencies was flat around more than two-month highs, while its stocks counterpart rose 0.1 per cent after posting its best month since January.

The PMIs, combined with sluggish rise in new home prices in China, raised expectations of easing monetary policy there, and sent Chinese blue-chips up 1.3% after two days of losses.

“While there is some room for the fiscal and monetary policy to catch up a bit to ease the slowdown pains (in China), the economic policy alone is insufficient to help turn around the economy,” warned Commerzbank Senior Economist Hao Zhou.

Turkey shares hit over five-month highs, while Russia’s MOEX narrowed its gap to record highs to 0.4 per cent.

Middle East and African stocks were flat to lower. The chief executive of beleaguered state-owned utility Eskom warned that coal power generation could see South Africa face “another era of isolation”.

Indian shares steadied after hitting all-time highs, propelled by data showing the economy grew more than 20 per cent in the April-June quarter.

Overnight, Chile’s central bank doubled the benchmark interest rate to 1.5 per cent, topping expectations. The currency underperformed its Latin American peers last month primarily due to volatility in metal markets on concerns over local copper supply.

Slower growth was displayed by the real estate sector, which expanded 3.7 per cent, construction at 3.1 per cent and agriculture at 2.3 per cent.

Turkey re-imposed curfews, weekend lockdowns and restaurant closures this year, including a tougher but brief lockdown in April and May due to surging COVID-19 cases.

Manufacturing and the broader economy were largely unaffected by the measures, which were lifted in June.