Turkey Macro: 2Q16 GDP Growth Preview

Turkey’s growth has been remarkable resilient recently. While some of the biggest developing has entered recession, and some other has just muddled along, Turkey has managed to sustain economic growth along with its Asia peers amid rising concerns around emerging markets.

Turkey, despite some setbacks, grew 4.8% y/y in 1Q 2016, beating our estimates by 40 basis points. The economy was faster largely due to private consumption and lacked the contribution from private investment, which, however, could have been a sign of strength for the economy in the upcoming quarters. That said, domestic demand coming out stronger than expected could be attributed to the minimum wage hike and Syrian migrants’ consumption.

Regarding the growth Turkey had a second quarter will full of ups and downs as evidenced by macro data (see the charts below) which, in our view, did not provide much cause for comfort. Particularly, the economy seemed to be strong during May while it posted weaker reading for April and May. We believe that 2Q was another round of weak private investments but this likely to be offset by other components of the growth to some extent. We estimate that Turkey will post a 3.4% y/y real GDP growth in 2Q report which is scheduled to be announced on September 9, 2016.

Turkey - Industrial Production - June 2016

Turkey - Capacity Utilization - June 2016

Turkey - Real Sector Confidence - June 2016

Turkey - Consumer Confidence Retail Sales - June 2016

For the remainder of this year, we expect Turkey’s growth continue to decelerate but is very likely to outperform its EMEA peers. On a separate positive note, the domestic political environment has recently been more stable in the aftermath of failed coup attempt. Also, there are some positive signs of greater social cohesion between different segments of society which may re-build confidence. This would pose upside risks to growth trajectory.