Turkey’s economy grew rapidly in 2022 thanks to buoyant consumer spending, according to data that underscores how President Recep Tayyip Erdoğan is prioritising growth over fighting high inflation.
Gross domestic product increased 5.6 per cent on an inflation-adjusted basis, Turkey’s official statistics office reported on Tuesday. The rate was higher than the 2.3 per cent recorded by the G7 group of advanced economies and the IMF’s forecast of 3.9 per cent for emerging markets.
The report, which covered the period before this month’s devastating earthquake, highlighted Erdoğan’s focus on pumping up economic output rather than following the path of most other countries, which have sacrificed growth in an effort to tame inflation through higher borrowing costs.
Consumer price growth in Turkey exceeded 85 per cent in October and remained at almost 60 per cent last month. Consumer spending, which makes up almost 60 per cent of Turkey’s economic output, rose 19.7 per cent in 2022. Consumers will during periods of high inflation often prefer to buy goods rather than wait for them to become more expensive.
Erdoğan faces the toughest election campaign of his two decades in power when Turks go the polls for a vote set for May 14, although some analysts expect the date to be put back because of the quake.
His government had boosted the minimum wage, public sector salaries and pushed up pensions in an effort to secure votes. “The way Turkey has adapted to its high-inflation environment has been through government support,” said Liam Peach, economist at Capital Economics in London.
Peach said the fast pace of consumer spending was a sign that Turkey’s economy was “overheating” as a result of fiscal support measures from the government and a series of sharp interest rate cuts last year.
Erdoğan’s insistence on slashing rates despite the high price growth and his government’s other unorthodox economic policy approaches inflamed the inflation problem, according to economists.
The central bank cut interest rates again this month as it sought to shore up the economy against the effects of the devastating February 6 quake, which caused $34bn in physical damage, equivalent to about 3.8 per cent of Turkey’s 2022 GDP, the World Bank estimated.
Analysts are still assessing the full impact of the disaster on Turkey’s economy, but many expect a short-term hit to growth followed by a fresh surge in government spending to fund the huge recovery effort. Turkey’s economic growth rate is forecast to ease to 2.7 per cent this year, according to economist estimates collated by FactSet, many of which were produced prior to the quake.
Trade was strong in 2022, with exports rising 9.1 per cent and imports increasing 7.9 per cent. However, trade turned into a drag at the end of last year, with exports falling on a quarter-on-quarter basis both in the final three months of 2022 and the previous three-month period.
Peach and many other economists say the lira, which has been propped up by central bank interventions and a series of government programmes to discourage holdings of foreign currency, remains too strong — hurting the competitiveness of Turkish exports.
Source: Economy - ft.com
