The economy in Turkey has been growing since the beginning of the year. Domestic demand in particular is supporting the economy. But rampant inflation is still not under control.
In the first quarter of this year from January to March, Turkey’s gross domestic product (GDP) rose by 2.4 percent compared to the previous quarter, the Turkish National Statistical Institute announced today. Compared to the same quarter last year, Turkey’s GDP rose by 5.7 percent.
Economists surveyed by the Reuters news agency expect the economy to grow by 3.15 percent for the full year 2024. The Turkish economy grew by 4.5 percent in 2023, despite an economic slowdown among its most important trading partners and the consequences of the strong earthquake in February 2023.
In the first quarter, consumer spending rose by 7.3 percent year-on-year, according to the figures. Exports rose by four percent, while imports fell by 3.1 percent. The construction industry also boosted the economy, growing at an above-average rate of 11.1 percent.
Inflation remains very high
However, the Turkish central bank’s monetary policy is likely to pose a headwind for the economy. It has massively increased its key interest rate since June 2023, and it has been at 50 percent since March. The central bankers want to use the high interest rates to combat high inflation.
Annual inflation was just under 70 percent in April and is expected to rise to almost 75 percent in May, according to a Reuters poll of economists – the highest level since November 2022. The central bank recently left the key interest rate stable, but it is prepared to take action if the outlook for inflation worsens.
The weak national currency, the lira, remains an important driver of inflation. The currency is trading near record lows against both the euro and the dollar. The Turkish lira has lost a lot of value in recent years. Many imports that have to be paid for in foreign currency on the world markets are therefore becoming more expensive.