(Bloomberg) — Turkey’s $1.1 trillion economy grew much faster than forecast, avoiding a contraction during a two-quarter stretch when the central bank delivered the bulk of its massive interest-rate hikes.
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Gross domestic product expanded 1% in the fourth quarter from the prior three months in seasonally and working-day adjusted terms, according to data published on Thursday. That was higher than all but one forecast in a Bloomberg survey of economists, whose median was 0.3%.
But economic momentum waned on an annual basis, resulting in a GDP gain of 4% versus 6.1% in the third quarter. That was still more than the 3.5% median estimate in another Bloomberg poll.
The economy grew 4.5% in the full year, down from 5.5% in 2022.
The pivot toward tighter monetary policy since June has put restraints on consumption that accounts for more than half of gross domestic product. With a sharp deceleration in lending and quarterly retail sales growth barely above zero, the goal is to engineer a slowdown in inflation swollen from an era of cheap money.
A muted growth doesn’t mean the central bank won’t consider further rate hikes on top of a cumulative 36.5 percentage points of increases through January. Newly installed Governor Fatih Karahan already signaled more tightening could be warranted should domestic demand take off after wage increases in Turkey.
While the economy is shifting into lower gear, the resilience of consumer spending may present a challenge for Karahan as he looks to bring inflation to 36% by the end of the year, roughly half the peak level it’s expected to reach in the coming months.
A model developed by Selva Demiralp together with fellow researchers at Koc University showed the likelihood of recession is now at 10%, compared with a probability close to 20% a quarter earlier.
Economists at Turkiye Garanti Bankasi A.S. said their big data indicators “signal that consumption is not decelerating much further since November,” according to a report this month. “Domestic demand remains stronger than supply, posing risks on both inflation and the current account deficit.”
A quarterly contraction in industrial production during the final three months of last year contrasts with a slight expansion in retail sales. It’s a pick-up attributed in part to a recent spike in credit card spending, as consumers brought forward their purchases in anticipation of higher wages ahead of local elections in March.
–With assistance from Joel Rinneby.
(Updates with forecasts in second paragraph)
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