Turkey Q2 economic growth seen at 4.1%, full-year at 2.9%: Reuters poll

A Reuters poll forecasts Turkey's Q2 GDP growth at 4.1% and 2024 growth at 2.9%, notably below the government's 4% projection, with 2025 also anticipated at 2.9%. This more cautious outlook signals the economy is cooling due to the central bank's sustained monetary tightening, which has maintained a high policy rate of 43% despite recent easing, compounded by global trade pressures.

Analysis

A Reuters poll indicates a significant divergence between market expectations and official government targets for Turkey's economy, forecasting 2024 GDP growth at 2.9%, well below the government's 4% projection. This slowdown is attributed to the aggressive monetary tightening cycle that began in mid-2023, which, despite recent easing, has left the policy rate at a high 43%. The central bank's policy has been notably reactive, with a 350 basis point hike in March-April driven by political turmoil surrounding the arrest of Istanbul's mayor, signaling a high degree of policy uncertainty. While headline Q2 growth is forecast at 4.1%, leading indicators from Citi suggest a deceleration in sequential growth to 0.6% from 1.0% in Q1, implying that base effects may be flattering the annual figure. The combination of restrictive monetary policy and pressures from global trade is effectively cooling the economy, a trade-off that has helped reduce inflation from a peak of 75% to 33%.

Key Decisions for Investors

• Investors should recalibrate their Turkish GDP growth expectations for 2024 to the consensus 2.9% forecast, which suggests potential headwinds for corporate earnings, especially in domestic-focused sectors.
• Closely monitor the Turkish central bank's policy decisions, as the demonstrated sensitivity to domestic political events introduces significant policy risk and the potential for heightened market volatility.
• Anticipate the official Q2 GDP data release on September 1 as a key catalyst that could either confirm or challenge the current narrative of an economic slowdown.
• Consider the negative impact of sustained high interest rates on sectors like banking and construction, which are particularly vulnerable to a cooling economy and restrictive credit conditions.