Turkey’s economy grew 7.4% in the third quarter; read the clouds

The data came against the backdrop of a 43% drop in the pound against the dollar this year. The pound weakened 2.2% to 13.08 10:52 GMT.

Analysts have warned of the pound’s impact on future growth, with Goldman Sachs revising its 2021 growth forecast to 10.5% from 9.5%, while cutting its 2022 forecast by half a point percentage to 3.5%.

“We think the GDP figures released today tell us little about the pace of economic activity going forward, as the recent decline in the pound is likely to have a significant impact on economic activity.” said Murat Unur of Goldman Sachs.

President Tayyip Erdogan, who is fiercely opposed to raising interest rates, said Turkey would prioritize growth, jobs and investment, suggesting that the exchange rate and inflation could drift even higher.

The central bank has cut its policy rate by 400 basis points to 15% since September as part of an easing cycle that economists say is reckless given the spike in inflation to 20% and the fall of the pound.

“Lower rates could lead to high real GDP growth, but at the cost of a weaker currency, higher inflation and longer-term concerns about macro-financial stability,†said Tim Ash, a seasoned observer of Turkey at BlueBay Asset Management.

“The longer these parameters are maintained, the greater the risk of a systemic economic crisis in Turkey – in particular the risks of runaway inflation and bank runs.”

In a Reuters poll, the economy is expected to have grown 7.5% in the third quarter with annual growth of 9.5%. However, the recent pound crash and surging inflation are expected to hamper growth in the coming months.

Second-quarter growth has been revised to 22.0% per year from 21.7% initially, rebounding from a sharp slowdown a year earlier due to COVID-19 restrictions. Read more

The Reuters poll also predicted that the economy would grow 9.5% throughout 2021, despite expectations that the weak pound and inflation would hamper growth in the coming months.

Additional reporting by Can Sezer, Ebru Tuncay and Karin Strohecker; Written by Daren Butler; Editing by Andrew Heavens, Jonathan Spicer and Bernadette Baum