Turkey’s economy shook off recession to grow 0.9 percent in the three months ending in September from the same period the year before. The data, released on Monday, broke three straight quarters of contraction that followed last year’s currency crisis.
Turkey has a track record of five percent growth, but a 30 percent slide in the lira last year pushed up inflation and interest rates, while domestic demand tumbled. The central bank has since slashed borrowing costs to revive activity.
Monday’s data was roughly in line with a Reuters News Agency poll that forecast one percent year-on-year expansion in the third quarter. The poll also predicted that the economy will grow 0.5 percent in 2019 as a whole.
The government has forecast 0.5 percent growth for this year and five percent growth in 2020. Finance Minister Berat Albayrak wrote on Twitter that leading indicators for the fourth quarter showed growth momentum continues to increase.
But economists say achieving the government’s target could prove difficult.
“The key issue for me is that there is still not that much confidence among households and corporates,” said Piotr Matys, emerging markets foreign exchange strategist at Rabobank.
He said authorities needed to make significant progress on economic reforms to restore confidence amongst investors and locals, with efforts so far having focused mainly on short-term solutions.
The third-quarter growth was driven by the agricultural sector, which expanded 3.8 percent, while industry grew 1.6 percent and services grew 0.6 percent. However, the construction sector, which underpinned years of strong economic growth in Turkey, shrank 7.8 percent, according to data from the government-run Turkish Statistical Institute (TUIK).
The lira stood at 5.7550 against the dollar after the data’s release, weakening from 5.74 beforehand.
Compared to the second quarter, gross domestic product expanded by a seasonally and calendar-adjusted 0.4 percent, its third positive quarter-on-quarter reading in a row, TUIK data showed.
QNB Finansbank said in a note that private consumption was the major driver of growth quarter-on-quarter, but that its contribution had weakened.
TUIK said exports increased 5.1 percent year-on-year in the quarter, while imports grew 7.6 percent.
As the economy has recovered, inflation tumbled to single digits in October due to base effects, and loan growth picked up thanks to central bank rate cuts. In the second quarter, the economy shrank a revised 1.6 percent from the previous year.
In late October, the central bank slashed interest rates more than expected to 14 percent, continuing an aggressive bout of cuts from 24 percent since July to help revive the recession-hit economy.
The central bank governor subsequently said the bank had used a significant part of its leeway for loosening monetary policy. Last week, he said the bank will use required reserves to support real-sector access to loans and loan growth.
A business survey on Monday showed Turkish manufacturing activity contracted in November as new orders slowed although output picked up. The purchasing managers’ index for manufacturing rose to 49.5 from 49.0 in October, said the Istanbul Chamber of Industry and IHS Markit.
“The economic confidence index and its components suggest a broad-based recovery in economic activity in Q4,” the QNB Finansbank note said.
Trade data on Monday showed exports were flat in November, with imports jumping 9.2 percent, resulting in a tripling of the trade deficit to $2.15bn.