(Bloomberg) — Turkey’s economy picked up at the start of the year on pre-election spending and strong household consumption. The rest of 2023 will likely be even more difficult as the newly elected president battles the rising cost of living.
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Gross domestic product probably grew 3.5% year-on-year in the first quarter and 0.5% from the previous quarter, according to a Bloomberg survey. Fiscal stimulus and low interest rates have helped cushion the economic impact of two massive earthquakes in southeastern Turkey in February.
Wednesday’s announcement comes after Sunday’s runoff in Turkey’s presidential election. Rec Machar Erdogan will extend his term of office for a third decade by defeating Kemal Kilidaroglu.
The country was the fastest growing economy in the G-20 last year, after Saudi Arabia and India, with a growth rate of more than 5%. Erdogan’s administration fueled that expansion with cheap credit and heavily subsidized bills, as well as increases in the minimum wage and pensions.
Those moves and ultra-loose monetary policies have come at the expense of financial and price stability, with inflation reaching 86 percent last year. It has declined but is still as high as 44%, higher than anywhere else in the G-20 except Argentina.
What Bloomberg Economics Says…
“We expect year-over-year GDP growth of 4.8% for 1Q23, following 4Q22’s 3.5%. That reflects pre-election and earthquake-related spending, which reflects a faster recovery in disaster-hit areas. In the face of persistently high inflation, one of the front-loading factors is consumer spending.” It’s a reason.
– Selva Bahar Baziki, Economist. Click here to read more.
If the victory is confirmed, Erdogan’s gifts are expected to stop as officials turn their attention to expanding the budget and reducing the current account deficit.
Growth will slow to 1.6% in the second quarter and reach 2.7% overall in 2023, according to a Bloomberg survey of economists.
“We expect a tightening of policy in the second half, leading to a slowdown in growth,” said economists at Goldman Sachs Group Inc., including Clemens Graf. He mentioned that foreign reserves declined in the first quarter and the current account deficit reached more than 6 percent of GDP.
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