The Kapali Carsi

Summary of Turkish 1Q GDP

Turkish first quarter National Income Accounts (NIA) were released today. It is safe to say that the key word is rebalancing- from domestic to external demand, which is a positive development given the country’s large current account deficit and dependency on capital flows for growth:

Some analysts have claimed that the adjustment is mainly due to gold trade: Turkey was a net exporter of gold ($ 1.6 bn) in the first quarter, versus a net importer ($ 1.3 bn) in the first quarter of 2013. However, there is a good chance that a significant part of the 1.2 percentage points shaved off from growth because of the stock-buildup is due to the gold stock build-up, so it is safe to say that there is rebalancing despite the gold effect:

You can also see, by looking at the sources at growth in more detail, that private investment plunged, shaving off 0.3 percentage points from growth. Public spending and investment continued to contribute to growth, but at 1 percentage point, their contribution was less than the previous quarter (1.5 percentage points).

All in all, quite a good turnout, not only because of the headline number but also for the composition of growth. And especially since when you think that it came despite significant political turmoil in the aftermath of the graft scandal and a global environment negative for emerging markets that causes the lira to depreciate significantly- and the Central Bank to respond with an emergency rate hike at the of January. I knew that the rate hike would not affect first quarter growth at all, and firms did not invest in this uncertain environment, but still…

But as I have argued before, I am worried that Prime Minister Recep Tayyip Erdogan will disrupt this rebalancing by forcing the Central Bank to cut rates significantly at its June rate-setting meeting. In fact, his Economy Minister Nihat Zeybekci was once again urging the Central Bank to cut rates right after the release of the GDP figures…

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