Turkey’s economy grew 5.6% in 2022, pace to slow after earthquakes

Turkey’s economy expanded 5.6% in 2022, official data showed on Tuesday but growth was expected to slow significantly to 2.8% in 2023 after earthquakes this month caused widespread destruction in the south of the country.

The economy had started cooling in the second half of 2022 with a decline in domestic and foreign demand, partly due to a slowdown in Turkey’s main trading partners because of the war in Ukraine, which hurt exports.

Growth stood at 3.5% in the fourth quarter of 2022, down from a revised 4% in the third quarter and 7.8% in the second quarter.

In 2022, finance and insurance activities grew 21.8%, followed by the services sector which rose 11.7%, data from the Turkish Statistical Institute showed. The only contraction was in the construction sector, which shrank 8.4%, the data showed.

Overall consumption contributed 11.5 points to annual growth, according to economists’ calculations. Net foreign trade and stocks lowered it by 3 and 5.5 percentage points, respectively.

Indicators before the earthquake suggested that gross domestic product (GDP) growth had revived with the help of domestic demand, but risks to annual growth were now on the downside after the disaster, said Haluk Burumcekci, of Burumcekci Consulting.

“The size and duration of the earthquake zone’s contribution to all sectors, particularly the manufacturing industry … will be critical in shaping the magnitude of the expected slowdown in growth this year,” he said.

The likelihood of a slowdown in January was “quite high” but stronger growth may be seen in the following quarters as production gains compensate for losses in other areas, Burumcekci said.

To counter the slowdown, the central bank cut its policy rate by 500 basis points at the end of last year and then by a further 50 basis points to 8.5% last week to support growth after the earthquakes killed more than 50,000 in Turkey and neighbouring Syria.

GDP growth in 2023 is expected to be 2.8%, based on the median estimate in a Reuters poll. Predictions ranged from 1.2% to 3.9%.

In a poll conducted in January, before the earthquakes, the median estimate for 2023 economic growth stood at 3%.

Business groups and economists have said rebuilding could cost Turkey up to $100 billion and shave one to two percentage points off growth this year.

The two major earthquakes on Feb. 6 caused about $34.2 billion in direct physical damage but total reconstruction and recovery costs could be twice as high, the World Bank said on Monday.