Government stimulus sees Turkey outperforming peers in third quarter

Despite an economy ravaged by coronavirus, Turkey outperformed its peers in the third quarter of 2020, thanks to a stimulus campaign.

Gross domestic product rose 6.7% last quarter from a year earlier, after a 9.9% contraction in the previous quarter, data released this week shows. This figure was significantly head-and-shoulders over the 14 other markets analysed by Bloomberg, which had an average of 4.8% growth.

Turkey's US$736 billion economy outperformed every one of the Group of 20 nations including China, the report shows.

This can be attributed to some decisive economic measures, including interest-rate cuts, fiscal spending and a government-led credit push.

Here are some takeaways from the GDP report:

• Last quarter’s growth was pushed by household consumption, which rose 9% from the same time in 2019;
• Exports fell 22%, after dropping 36% in the preceding three months. However, imports rose 16% following a 8% drop
• Gross fixed capital formation, which measures business investment, rose an annual 23%

The Turkish government has pushed for economic recovery with a slew of measures designed at reigniting spending. They pushed banks to increase lending, which helped spending, which in turn propped up businesses. Loan growth as a result was steady throughout the summer, slowing as the weather cooled.

Turkey's Central Bank fostered liquidity by buying government bonds, and delivering 1575 basis points of easing ahead of rate cuts ceasing in June. This left Turkey's inflation-adjusted borrowing costs low. 

The fourth quarter

The final quarter of 2020 activity will see a slight slowdown, experts predict.

“Activity will slow in 4Q on higher interest rates and a surge in the rate of Covid-19 infections. We expect growth to be around zero this year, before advancing to 4% in 2021,” said an economist.

That virus surge saw Turkey reintroducing measures to curb the spread of coronavirus. Another stumbling block was replacing its central bank and economy chiefs. President Recep Tayyip Erdogan has pledged to throw his weight behind the new chiefs, even when their ideas conflict with his views. With the lira at historic low and inflation high, he had little choice.

Another move that could dampen Q4 growth is the raising of interest rates by the highest level in two years, a move that could slow demand.

But in all, Turkey's holding up well against its neighbours, near and far, as they too struggle to deal with the pandemic that has crippled the globe.

“Turkey’s main trading partners across Europe lost momentum in the fourth quarter due to various restrictions imposed to regain control over the coronavirus pandemic,” said Piotr Matys, a strategist at Rabobank in London.