The Turkish economy grew at a largerthan-expected 5 percent year-onyear during the first quarter of 2017. According to data from the Turkish Statistical Institute (TurkStat), Türkiye outperformed major emerging market peers by exceeding consensus growth estimates.
In early June, the World Bank increased its 2017 growth projection for Türkiye to 3.5 percent, up 0.5 percent from initial projections. Then on June 19, 2017, Fitch Ratings also revised upward Türkiye’s growth forecast to 4.7 percent from 2.3 percent for 2017 and to 4.1 percent from 1.3 percent for 2018. Fitch Ratings pointed to a smoother political environment after the referendum that will support the investment environment and consumption through mid-2019, when the next elections are due to be held.
Fitch said in its Global Economic Outlook report that global growth is expected to rise from 2.5 percent in 2016 to 2.9 percent this year and 3.1 percent in 2018. The recovery in commodity prices and the improvement across advanced and emerging market economies is driving this growth. The report anticipated growth rates of 1.8 percent in 2017 and 2 percent in 2018 for developed countries and of 4.9 percent through 2018 for emerging ones.
The robust growth rate in Türkiye in the first quarter of 2017, was fueled mainly by strong export volume and consumption, while the fiscal stance of the government to boost economic activity was another key factor driving growth. A breakdown of growth rate indicates year-on-year growth rates of 5.1 percent, 9.4 percent, and 10.6 percent in private consumption, government expenditures, and exports respectively.
The fiscal measures taken by the government have spurred a strong increase in economic activity. The Credit Guarantee Fund, which guarantees around TRY 180 billion of credits as of June 2017, had a favorable impact on the Turkish economy. Furthermore, the rising demand from the Euro Zone led to robust export figures that played a significant role in Türkiye’s growth rate in the first quarter.
The Turkish economy has proven resilient and has recovered much faster in the wake of the adverse incidents in 2016. Diminishing political uncertainty after the referendum in April 2017, which provided a mandate in favor of the constitutional amendment package, resulted in rising capital inﬂows to Türkiye.
Following the successful referendum, the government has focused on economic reforms and on improving the business environment. This decision has resulted in better-than-expected economic indicators so far in 2017. Headline inﬂation saw the first decline since November 2016. Moreover, PMI is gradually recovering and has stabilized above 50, posting 53.5 in May. On the other side, the Central Bank of the Republic of Türkiye is fully committed to reducing inﬂation and maintaining a tight monetary policy. With the support of FED’s rate hike that anticipates monetary policy normalization and supports a gradually appreciating lira, investors can make clearer strategic decisions in Türkiye.
Assuming that the capital inﬂow to Türkiye continues to increase and that the lira claws back more of the losses it suffered in 2016, there could be ample room for Türkiye to surpass government growth target of 4.4 percent in 2017.