It is likely that Turkey will finally be Finished by the Consumers Before the Dear People Come In

(Bloomberg) — Turkey’s economy is likely to grow faster to start the year, as consumers add to a so-far unsecured expansion in a series of sharp interest rate hikes aimed at curbing domestic demand.

Most Read from Bloomberg

Idling the economic engine has been a challenge because many Turks have raised their spending in anticipation of a recession after local elections in March. And with households anticipating near-triple-digit price increases by the end of the year, shoppers went ahead with the purchases they otherwise would have made, but perhaps at higher prices.

The result is what is probably the last rate before the recession. Gross domestic product rose 5.8% in the first quarter, compared with 4% in the previous three months, according to analysts’ forecasts in a Bloomberg survey.

Data released on Friday will also show GDP growth came in at 1.6% from the previous quarter when adjusted for business days and seasonal changes, according to another analysis. Consumption accounts for more than half of Turkey’s $1.1 trillion economy.

“The decline in domestic demand is still limited and overall demand is still stronger than supply,” Garanti BBVA economists led by Seda Guler Mert said in a report.

Growth has not fallen below 4% during a period when the central bank raised interest rates nearly six-fold to 50% – a tightening campaign that came at the end of the first quarter.

Monetary policy has not helped the high demand for consumer goods and services is one of the main reasons why inflation is approaching 75%.

As municipal elections approach, for example, the government raised the minimum wage by 50% at the start of the year to reduce the high cost of living, a decision officials say has played a major role in stabilizing household spending. .

What Bloomberg Economics Says…

“We attribute the increase in first-quarter spending to expectations of a sharp currency slide after the March 31 election. The lira had fallen by more than 20% against the dollar in the month after Mots’ election. June 2023. Households are likely to be filled ahead of 1Q24 amid fears that there will be a similar opportunity to buy power after the March election.”

– Selva Bahar Baziki, economist. Click here to read more.

The story continues

Gauging domestic demand is even more important for investors who are returning to the Turkish debt market in droves, attracted by its high-yielding assets and the prospect of deep inflation. . But little evidence has emerged so far of a decline in consumer sentiment.

Retail sales growth is hovering around 20% and consumer confidence is at its highest in nearly a year. A survey of households this month by Istanbul-based Koc University found that they expect inflation to end the year at 92%, which is more than double what the central bank said.

A reduction in inflation now depends on better coordination between monetary and fiscal policies – as well as President Recep Tayyip Erdogan’s patience if the economy turns around.

A former champion and political heir of cheap money, Erdogan suddenly changed last year and left a group of experts in economic management.

A strong commitment to rein in inflation should set the stage for measures such as strong fiscal adjustments to reduce the budget deficit and offset short-term wage increases in the coming months.

The central bank expects a negative output gap – where the economy produces less than long-term capacity – to open after next month, where the lack of demand should begin to restrain inflation.

According to the minutes of this month’s ratings meeting, “the latest indicators point to a decrease in domestic demand compared to the first quarter.” At the same time, policymakers said “the level of demand is still dangerous for inflation.”

What happens next is unclear. Economists at Goldman Sachs Group Inc. they predict that the slowdown will last the second half to bring full-year growth to 2.8%.

“The main risk of this outlook is a shift in policy focus from disinflation to maintaining growth,” they said in the report.

–Courtesy of Joel Rinneby.

Best Reads from Bloomberg Businessweek

©2024 Bloomberg LP