Growth is Set for a Q4 Comeback?

Turkish government lowered its 2016 GDP growth target to 3.2% in its Medium Term Plan about a month ago. Also, the results of the central bank’s survey of expectation point to a same level of output growth for 2016 in October, coming down from 3.67% in July. Put together, Turkey had experienced a severe economic slowdown during Q3 -we believe there is good chance that seasonally adjusted GDP growth will be negative-. Given the rise of 3.9% in 1H16, government and the participants of CBRT survey predict a 2.5% increase in national income which means below par growth in the remainder of the year.


Turkey’s ability to recover fast was evidenced following the global financial crisis. In our view the final quarter of 2016 will mark a similar story, as we believe the government’s incentives to boost lending are very likely to pan out well in near term. Weekly banking sector data suggests that annual lending growth reached the bottom at 6% late September, now is slightly above 10%. Note that a drop below 10% is seen for the first time since the global financial crisis, and considering the current inflation trends in the country that would mean a contraction in real terms.


We believe that economic slowdown in 2H16 would be milder than expected, and the output growth even may overshoot the government’s target. We also expect to see fiscal and monetary stimulus, which, however, will bring some pressure for budget, current account balance, and inflation.