Turkish economy likely to expand 6.6 pct in 2017, slowdown to 3 pct in 2018 - HSBC

The Turkish economic growth had reached 11.1 percent year-on-year in third quarter, shown by recently published national accounts. Domestic demand mainly drove the economic growth. Household spending accelerated sharply to 11.7 percent year-on-year, while government spending rose 2.8 percent. Meanwhile, strength was widespread on the investment front. Construction investment was up 12 percent, while machinery and equipment investment grew 15.3 percent. Exports were strong for the third consecutive quarter, growing 17.2 percent year-on-year, but imports also rose 14.5 percent year-on-year, lowering the contribution of net exports to the headline GDP growth to just 0.3 percentage points for the quarter.

According to HSBC Global Research, the Turkish economy is likely to grow 6.6 percent in the whole of 2017. Also, the economy is expected to expand 3 percent in the next year. The solid performance of 2017 was greatly stimulus driven. The government introduced a TRY 250 billion credit guarantee facility and pushed the budget shortfall from 1.1 percent of GDP to almost 2 percent.

2018 is not expected to benefit from a similar magnitude of stimulus. Almost 90 percent of the credit guarantee fund has been used up, and a similar facility is unlikely to be introduced again, stated HSBC.

“We expect the budget deficit to widen slightly, to around 2.6% of GDP in 2018, but this is unlikely to offset the absence of the CGF. Meanwhile, real interest rates will, most likely, have to be higher over the course of 2018 as strong growth in 2017 has come at the expense of sizeable imbalances building up in the economy”, added HSBC.

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