Turkey: 1Q20 GDP Grows By 4.5%

Economic activity continues the recovery process in 1Q20, driven mainly by private consumption, the supportive impact of government consumption and inventory build-up despite the weakness in gross fixed capital formation. But Covid-19 lockdown measures mean second-quarter numbers are likely to pull full-year growth into the negative territory.

Source: Flickr

Despite lower than expected 1Q20 GDP growth at 4.5% year on year, versus market consensus of 5.4%, economic activity remained on a recovery path after turning positive in 3Q19. In seasonal and calendar-adjusted terms, economic performance continued to improve, though at a slower pace, recording 0.6% QoQ growth after rising by 1.9% QoQ in 4Q19, mainly driven by a drag from net exports.

On the other hand, recent high-frequency indicators signal a marked contraction in economic activity in the second quarter on the back of Covid-19 related restrictions.

Quarterly growth (%, YoY)

Source: TurkStat, ING

Looking at the spending breakdown

  • Heavy-weight private consumption remained the major driver of growth and provided 3.0ppt contribution to the growth in 1Q20. Not only significant consumer credit momentum with the central bank's macro-prudential incentives as well as the continuing decline in yields supporting affordability of borrowing but also start of lockdowns at a later date than many European countries kept consumption appetite relatively undented in the first quarter.
  • Fiscal policy has remained expansionary in 1Q and in line with expectations, public consumption had another positive contribution to growth at 0.9ppt, higher than the impact on the headline realized a quarter ago.
  • Gross fixed capital formation remained negative at -1.4% YoY driven by continuing weakness in construction investments. Machinery & equipment investments, however, posted another positive 8.4% YoY growth in 1Q20 following a double-digit increase a quarter ago, likely attributable to strength in credit impulse and lower bank lending rates. Still, investments dragged the growth by 0.4ppt, in the seventh quarter in a row, pointing to further deleveraging in the real sector following the August 2018 financial shock.  
  • After turning to negative in 3Q19, with the end of external rebalancing, net exports have reduced headline growth by another -4.3ppt in the first quarter. This is attributable to reviving import demand recording 22.1% YoY expansion with the credit-fuelled strength in domestic demand while export growth turned to negative at -1.0% YoY due to the economic impact of the lockdown measures n export markets.
  • Finally, the contribution from inventory was another major driver of the 4Q growth with +5.3pp contribution, after another large 6.5ppt score a quarter ago.
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