Turkey's economic story for the third quarter of 2024 is one of caution and slowdown as figures reveal growth of only 2.1 percent. This marks not only a decline from the previous quarter's 2.4 percent but also registers the worst performance since the tumultuous second quarter of 2020 when the country grappled with the initial wave of COVID-19, which saw its GDP contract dramatically.
According to the Turkish Statistical Institute (TurkStat), the GDP for Q3 registered 11.9 trillion liras, which translates to roughly $358 billion. The current numbers manifest the pressures exerted by tight financial conditions and policy measures aimed at curbing inflation, yet they also hinted at some sectors still holding up reasonably well.
While overall economic expansion faltered, the construction industry showcased resilience with impressive growth of 9.2 percent year-on-year. Other sectors like agriculture saw growth of 4.6 percent, benefiting from the harvest season, and the finance and insurance sectors reported growth at 6.2 percent. Comparatively, services and industry were less fortunate; the services sector grew by only 2.2 percent, and industry saw a decline of 2.2 percent, indicating broad challenges across the economic spectrum.
Interestingly, the slowdown is expected to persist. Some forecasts are projecting GDP growth for the last quarter of the year to be around 1 to 2 percent. This cautious outlook reflects the potential impact of stringent government measures like elevated interest rates, which currently sit at 50 percent, and tightened access to credit.
Further compounding matters, private consumption, which had contributed positively earlier, only saw modest growth of 3.1 percent compared to the previous quarter's 7 percent and second quarter's 1.5 percent. Investment appetite also witnessed significant drop-off, with negative growth down to -0.8 percent, mainly driven by continued contractions within machinery and equipment sectors. Construction investments, on the other hand, demonstrated solid performance reflecting 9.4 percent growth, bolstering the overall GDP more than offsetting declines from other areas.
The challenges are multifaceted. Economists are pointing to the failure of various policies intended to slow the economy and their ineffectiveness at managing inflation, which remains high. According to Mustafa Sönmez, an economist, government measures like increased interest rates and limited credit access haven't cooled the economy enough. "Demand from wealthier segments of society and consistent state spending remains very strong," he notes, which indicates persistent inflationary pressures. The current inflation rate is stuck at approximately 48.6 percent, and any speculation about interest rate cuts will depend heavily on the next inflation report slated for release on December 3.
A key backdrop to these economic developments is the changing global economic environment. Turkey's economy is intricately linked to larger international trends, influences from its neighboring markets and the state of trade relations. The recent global slowdowns, amid geopolitical tensions and significant policy shifts, have affected trade flows and investment climates. These external factors play heavily on Turkey's economic outlook, and the upcoming months will be telling.
To summarize the economic narrative, Turkey is undergoing significant strains as it navigates tight monetary policies and concerns over inflation, whilst still maintaining areas of growth within specific sectors. The remainder of 2024 will be pivotal as the government weighs potential adjustments to fiscal policies amid persistent economic pressures.
What this means for ordinary citizens is uncertain, yet the shadow of tighter budgets, higher costs for goods and services, and cautious consumer spending appears to be the reality for the immediate future. How the central bank responds moving forward will be closely watched and will significantly impact Turkey's economic health heading toward 2025.