Strong Headline, Weak Composition

TURKEY - In Brief 10 Dec 2013 by Murat Ucer

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Turkish GDP growth was 4.4% in Q3, y/y, which was higher than forecasts (notably our softer forecast), but composition, though improved over a quarter ago, still leaves a lot to be desired. Growth appears to be driven by private consumption and stock build up, with net exports shaving off some 2.2 pp from it. On the positive side, government spending was more moderate this time, with private sector investment making a positive contribution, as we expected. The latter however involves a somewhat puzzling boost from construction component, with purchases of machinery and equipment rising relatively moderately, by 4.2%, after 7 quarters of y/y contraction. Bottom Line: Growth has proven more resilient than we thought despite the volatility of the summer months; composition is not healthy, though, suggesting reforms are a must to get growth going at a higher pace and, with a healthier expenditure composition. We think a growth rate of around 4% (slightly below perhaps) is now very likely for this year, but we expect growth to decelerate to around 3% next year. More analysis and pictures will follow late today.