Turkey expects the economy to maintain its growing trend as it expects strong expansion in the second quarter, a government report said on Tuesday.
The economy is expected to register double-digit gross domestic product (GDP) growth in the April-June period, boosted by strong exports and the so-called base effect, the report showed. public finances unveiled by the Ministry of the Treasury and Finance.
Strong external demand supported production in April and May, according to preliminary figures. Demand for durable goods remained strong, while sales of vehicles and household appliances remained resilient. Imports of consumer goods also continued an upward trend in April.
The economy is estimated to be booming on a year-over-year basis, although activity is expected to slow in the second quarter due to tighter financial conditions and the lockdown that covered part of May.
It had fallen sharply last year when the first fallout from the coronavirus caused a 10.3% contraction in the second quarter.
Confidence indices have weakened recently and the slowdown in consumer credit has continued.
The economy grew at a faster-than-expected pace in the first quarter, outperforming most major economies as pandemic-related restrictions were careful not to temper retail sales, exports and manufacturing.
The country’s GDP grew 7% year-over-year in the first quarter and 1.7% from the previous quarter on a seasonally-adjusted and calendar-adjusted basis, data from the Turkish Institute showed on Monday. statistics (TurkStat).
Growth in the first quarter was driven by industrial production and other key sectors which recovered well from the worst fallout from the coronavirus last year.
It was also supported by robust consumption in the wake of last year’s government campaign to cut interest rates and increase lending.
On May 17, Turkey eased restrictions as it emerged from a full lockdown and further eased measures from Monday.
Turkey was one of the few in the world to develop last year with a growth of 1.8%. It should get back into shape this year with growth of 5.5%.
Growth is expected to slow in the second half of the year due to prudent monetary and fiscal policies, according to the government report.
GDP growth for 2021 as a whole is expected to reach 5.8 percent, alongside the country’s medium-term program, the report notes.
External demand is expected to be among the main drivers, contributing significantly to the annual expansion, while the government expects the composition of growth to provide a balanced outlook.
As a result, the evolution of the pandemic and vaccination at home and globally will be decisive for economic activity, the report notes.
He warned that a re-acceleration of the epidemic could depress economic activity, while a positive trend in the epidemic and vaccination would support the outlook for the service sector, in particular.
Current account balance to improve
In addition, the government report suggested that the strong merchandise exports, despite the deterioration in foreign trade, as well as the normalization of gold imports, the expected partial improvement in travel income, moderate credit growth and Structural reforms are expected to have a positive impact on the country’s current account balance over the coming period.
As a result, the ratio of the current account deficit to national income is expected to decline to around 3% by the end of 2021.
The report recalled the sharp drop in overseas sales initially observed when the COVID-19 pandemic began, in particular due to the contraction in demand from major trading partners, namely EU countries.
Exports rebounded from the second half of last year with the normalization process both in Turkey and globally.
Turkey managed to close the year with $ 169.6 billion (Turkish liras 1.43 trillion) in overseas sales. Imports, on the other hand, amounted to $ 219.5 billion, driven by strong domestic demand and high gold imports during the said period, which drove the foreign trade deficit to 49 , $ 9 billion.
Meanwhile, this year, the recovery in EU countries has seen an acceleration in exports due to strengthening foreign demand. While annualized goods exports reached $ 186.7 billion in April, imports registered at $ 233.1 billion, leading to a foreign trade deficit of $ 46.4 billion due to higher prices. imports, despite the slowdown in gold imports and real imports in 2021.
By the end of the year, exports of goods are expected to increase significantly, reaching a historically high level of over $ 200 billion.
In addition to weak export figures at the start of 2020, sharp declines in tourism receipts due to travel restrictions and uncertainties about the course of the pandemic last year have significantly affected the country’s current account deficit which sank. amounted to $ 37.3 billion in 2020, corresponding to 5.2% of national income.
This figure fell to $ 36.2 billion on an annual basis in the first quarter of 2021, as uncertainties over the prevalence and timeliness of vaccination, and the upward trend in international commodity prices continue to dominate. weigh risks on the current account.
Meanwhile, gold imports, which reached 44.6 tonnes in August 2020, showed a slow decline towards the end of last year, however, declining to 9.5 tonnes in February and 7.5 tonnes in April, the lowest level in the past three years amid measures taken by the government.
The positive reflections of lower gold imports on the current account balance should become more evident in the coming months.
Comprehensive structural policies included in the new economic reform program that aim to improve the current account balance and reduce foreign dependence in financing growth with policies that increase the variety and depth of production and focus on innovation, competitiveness and efficiency are also among the measures which should reduce the current account deficit over the coming period.