Turkish economy grows 7.6% on spending splurge despite 80% inflation

Turkey’s economy grew by 7.6 percent in the second quarter of the year, as cheap lending helped engineer a surge in consumption despite inflation approaching 80 percent.

Annual growth accelerated from a revised 7.5 percent in the first quarter, according to data published by the Turkish Statistical Institute on Wednesday. The median estimate in a Reuters poll of 13 economists was for growth of 7.5 percent in the three months to June. Forecasts ranged between 5 percent and 8.7 percent.  

President Recep Tayyip Erdoğan's government, facing elections by June next year, has coerced the central bank into cutting interest rates to help spur economic growth and boost manufacturing and export sales. While exports have grown to record levels, Erdoğan’s policies have failed in their aim of narrowing the country’s current account deficit, which has grown sharply on a jump in imports. Annual inflation hit 78.6 percent in June and 79.6 percent in July after the lira slumped.

Final consumption expenditure of householders expanded by 22.5 percent in the second quarter versus a year earlier, the statistical institute said. Exports of goods and services rose by 16.4 percent.

The economy grew by 2.1 percent on a quarter-on-quarter basis, the institute said.

In dollar terms, economic output in the 12 months to June totalled $827.7 billion. Dollar-based economic output has expanded by 2.6 percent so far this year from $807.1 billion in 2021.

Turkey's central bank cited an economic slowdown in the third quarter when it shocked investors and economists earlier this month by lowering the benchmark interest rate to 13 percent from 14 percent. The lira has since extended its losses this year to 27 percent against the dollar after losing 44 percent of its value in 2021.

Turkey's economy grew by 11.4 percent last year. It was one of the few globally to expand in 2020, as cheap loans helped boost consumption and production despite the COVID-19 pandemic.

Most economists are expecting economic growth in Turkey to slow in the second half of the year. The Reuters poll predicted full-year growth of 4.05 percent. Forecasts ranged between 3.3 percent and 5 percent.

The lira was trading little changed at 18.19 per dollar after the data was released.

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