Q3 2016: Growth Turned Negative

First, The Revision

Turkey’s official statistics office released major revisions to its national accounts data as the data was rebased such that the components are weighted to compile a real GDP statistics by chain-linking with 2009 as the base year. The office also introduced changes to the GDP calculation method are some items are now included within investment expenditures. Turkey’s macroeconomic variables seems to be healthier now as nominal GDP jumped about 10% solely based on revisions, taking CAD-to-GDP ratio down to 4% from the previous 4.5%. Meanwhile, fixed investments now account for roughly 30% of the economy (which was under 20% before revision).

On components basis investment expenditures seem to benefit most from the revision.

Then First Contraction Seen Since 2009

Turkey posted the first y/y decline in real GDP since the global financial crisis as expected. We noted that our prospect was for a 0.8% negative reading which, however, appears to be exceeded as the economy shrank by 1.8%. On a separate note, we saw government expenditures growing by 24% in real terms, adding almost 3.6 percentage points to growth, which means the growth would be remarkably weak if it weren’t the government supporting the economic activity. The economy took a huge hit in July when a failed coup attempt occurred in the country. That said, September data also suggest a gloomy outlook. Additionally, sectoral breakdown analysis suggests that all industries posted contractions with the exclusion of construction.

Finally, Q4 Outlook

Early sings demonstrate that the economy has started to recover from the slump in Q3 but it may even dodge a technical recession. Industrial production averaged -0.4% in 3-month period ending October (+0.5% in seasonally adjusted terms). That said, the elevated growth rates via the revision will bring a base effect that would make harden it further for Turkey to post a positive figure for Q4. We believe that FY 2016 growth is very likely to remain below 2.5%.

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.