Turkey’s economy, valued at $1.1 trillion, has defied expectations by exhibiting robust growth, even amidst a period of significant interest rate hikes by the central bank. Despite the monetary tightening measures, gross domestic product (GDP) expanded by 1% in the fourth quarter of the year, outpacing forecasts and avoiding a contraction during a period when rate hikes were most pronounced.
Data released on Thursday revealed that household spending and investment were the primary drivers of the fourth-quarter growth, surpassing expectations outlined in a Bloomberg survey of economists. This growth momentum reflects a continued focus on consumption-driven expansion, albeit at a slightly slower pace compared to previous quarters.
While the full-year GDP growth of 4.5% in 2023 was slightly lower than the 5.5% recorded in 2022, the economy still exceeded median estimates, indicating a level of resilience amidst challenging economic conditions.
Okan Ertem, senior economist at Turk Ekonomi Bankasi AS, noted the shift towards tighter monetary policy aimed at curbing inflation, which has been fueled by prolonged periods of loose monetary conditions. Despite these efforts, consumer spending remains robust, posing a challenge for policymakers seeking to rein in inflation.
Looking ahead, Treasury and Finance Minister Mehmet Simsek emphasized expectations for moderate and balanced growth in 2024, with a positive contribution from net external demand. However, the potential for further rate hikes remains on the table, particularly if domestic demand surges following wage increases.
Newly appointed Governor Fatih Karahan has signaled a readiness to implement additional tightening measures should domestic demand escalate further. However, the resilience of consumer spending, coupled with ongoing challenges in curbing inflation, presents a complex scenario for policymakers.
While industrial production contracted during the final quarter of last year, retail sales experienced a slight expansion, driven in part by increased credit card spending ahead of anticipated wage hikes. Economists warn of risks associated with sustained domestic demand, which could exacerbate inflationary pressures and widen the current account deficit.
Despite these challenges, the Turkish economy’s ability to maintain growth momentum amid tightening monetary conditions underscores its resilience and adaptability in the face of economic headwinds.
