Activity flat in Q2, broadly as expected

TURKEY - In Brief 02 Sep 2024 by Murat Ucer

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The Turkish economy grew by 2.5% annually in the second quarter of the year, somewhat lower than expectations, but expanded slightly over the previous quarter (0.1%), which was somewhat better than expectations – including ours -- of modest contraction (Graph 1). As usual, we focus on the sequential (q/q) data here, because it better informs us on the latest state of the cycle and the composition of demand, we believe, which lends itself to two observations, as far as we can tell. First -- the obvious one, economic activity came to a standstill in the second quarter, with GDP barely expanding after 1.4%, q/q, growth in the previous quarter (the latter revised down from 2.4% previously). Second, the demand composition paints a somewhat puzzling picture, with both domestic and foreign demand making negative contributions to overall GDP growth – of 1 pp and 1.4 pp, respectively (using IMF methodology), which is slightly more than offset by a very sizeable – and somewhat puzzling -- positive contribution from stocks (the latter including statistical error). In this sense, the second quarter data, unlike the previous few quarters, is not supportive of a straightforward “rebalancing” story (Graphs 2-4), which, also worth pointing out, paints a different picture of the demand side of the economy than the one we see in the annual data (see Table 1 below). Turning to the production side, the picture is not one of broad-based weakness, with rather sharp contractions in industry, construction and administrative services (sequentially), offset by expansions in all other sectors (Graph 5; see Table 2 for annual data). The bottom line is that while today’s headline data – basically ...