Turkish sees economic growth jump from pandemic lows fueled by cheap credit

Turkey’s economy grew by a record 21.7 per cent in the second quarter from the same period in the previous year when it saw a sharp contraction..

But analysts were  unimpressed.

“Year-on-year growth was “largely uninteresting because of base effects from last year”, said former Goldman Sachs economist Erik Meyersson in a tweet.

“The quarter-on-quarter outturn was (marginally) below expectations,” he said. “The problem remains the low quality and lack of sustainability in Turkish GDP growth.”

Turkey’s economy has expanded 5 per cent on average over the last two decades, but has languished well below those levels in the last few years due to a currency crisis, recession and the pandemic.

Growth is fueled largely by cheap credit extended from state banks. The Turkish authorities have sought to spur economic growth this year by refraining from hiking interest rates since March and by supporting companies with new lending carrying advantageous repayment terms.

A reading for July inflation is due on Friday. The inflation reading is expected to stay close to the 18.95 per cent logged in July, driven by consumer demand, lira depreciation that has raised import costs, and a worldwide rise in commodities prices that have left Turkey with some of the sharpest price rises globally, Reuters reported.

Turkish President Recep Tayyip Erdogan continues to push for an interest-rate cut.

“We think inflation will remain close to 19.0 per  cent in the coming months and that an (interest-rate) easing cycle is unlikely to commence until the tail end of the year,” wrote William Jackson, chief emerging markets economist at Capital Economics. in a client note.

The lira is holding at about 9.90 to the euro, but if there is an interest rate cut at the next central bank policy meeting, it should be expected to fall against the major currencies. The start of the taper by the US Federal Reserve is also likely to push emerging market currencies lower, and the Fed is talking about a move this year.