Despite the ongoing currency crisis and high inflation rate, the Turkish economy grew surprisingly strongly in the second quarter of this year. The main reason for this is the consumer spending of Turks.
The Turkish economy presented surprisingly robust figures in the second quarter of this year. The gross domestic product (GDP) increased by 3.8 percent from April to June compared to the same period last year, as the statistics office announced today.
Economists surveyed by the Reuters news agency had only expected an increase of 3.5 percent after an increase of 3.9 percent had been enough in the first quarter.
Consumption boosts the economy
Government incentives ahead of the May elections, which were won by President Recep Tayyip Erdogan, helped fuel growth. In the past year and a half, she has doubled the minimum wage and spent record amounts on social assistance. As a result, the Turks consumed more, which boosted the economy.
“Consumer spending has been exceptionally strong,” said economist William Jackson of Capital Economics. Before the election, the central bank had cut interest rates for a long time in order to stimulate growth, exports and investment with cheap money.
challenges for the Turkish economy
However, the central bank recently reversed its interest rate policy due to the persistently high rate of inflation and the drastic devaluation of the national currency, the lira. The key interest rate was raised from 8.5 percent to 25.0 percent to combat inflation.
The inflation rate is currently at almost 48 percent and is likely to have risen to more than 55 percent in August, according to forecasts by economists. “In the second half of the year, growth will weaken,” said economist Jackson in view of the increased borrowing costs. For 2023 as a whole, analysts predict an increase of 2.9 percent.
The increase in interest rates makes the Turkish lira more attractive to investors. The exchange rate of the currency against the dollar has collapsed by around 70 percent in the past two years. This makes imports more expensive for the country, which is poor in raw materials, and thus contributes to high inflation.