Turkey’s economy bounced back from the COVID-19 pandemic to grow 11 per cent last year, its highest rate in a decade, but economists see a sharp slowdown this year as inflation surges following the lira’s crash and with the Ukraine crisis set to hit tourism.

Gross domestic product grew 9.1 per cent year-on-year in the fourth quarter, just above forecast, expanding 1.5 per cent from the previous quarter on a seasonally and calendar-adjusted basis, the Turkish Statistical Institute said on Monday.

President Tayyip Erdogan is implementing an economic plan that prioritises growth, employment, investment and exports driven by a series of unorthodox interest rate cuts which have brought the central bank’s policy rate down to 14 per cent.

But his plan sparked a currency crisis, and inflation of near 50 per cent in January. It could also be derailed by Russia’s invasion of Ukraine, which could slash tourism revenues vital to reducing a gaping current account deficit.

“A downturn seems likely at the start of this year. The monthly hard activity figures for December show that, while industry continued to hold up well, retail sales slumped,” Capital Economics said in a note.

It forecast a fall in GDP of 2.5-3.0 per cent in the first quarter, which it said was likely to be followed by a sluggish recovery.

“The Russia-Ukraine conflict has only added to the headwinds as it will contribute to keeping inflation in Turkey high for longer and threatens to weigh on the tourism recovery,” it said.

About a quarter of Turkey’s tourists are Russian or Ukrainian.

After early losses, the lira traded flat at 13.85 against the dollar following the release of the data.


The full-year GDP data showed expansion of 21.1 per cent in service activities and 20.2 per cent in information and communication. Agriculture shrank 2.2 per cent and construction activity declined 0.9 per cent.

A Reuters poll had forecast 2021 GDP growth of 11 per cent, while fourth quarter growth had been predicted to be 9 per cent.

Turkey was one of the few countries to expand in 2020, due largely to cheap loans to counter the pandemic’s economic impact. Growth picked up pace again in 2021 as COVID-19 restrictions were largely lifted.

Growth this year is expected to slow to 3.5 per cent, according to the poll, curbed by a 44 per cent slide in the lira against the dollar last year and the consequent inflation surge.

The emerging economic woes were highlighted by data showing the trade deficit surged 235 per cent in January to $10.26 billion, with energy imports rising to an all-time high of $8.82 billion.

The rise in Turkey’s import bill risks a higher current account deficit, which Ankara has been working to narrow down under the new economic programme.

Russia’s invasion of Ukraine raises the prospect of an even higher energy bill for Turkey due to higher commodity prices, making it more difficult to shore up the current account shortfall while creating fresh inflationary pressure.