TURKEY - GEDIK Macro View: Economic Growth (Gedik Yatırım)

3Q GDP growth eases to 3.9% YoY, broadly in line with expectations
 
 
3Q22 GDP growth eases to 3.9% YoY, broadly in line with expectations. TurkStat released that 3Q22 GDP growth reached 3.9% YoY, broadly in line with the 4.0% median market expectation (Foreks survey), and slightly higher than our 3.5% estimate. The working-day and seasonally adjusted GDP pointed to a slight 0.1% QoQ contraction. With this, GDP growth for the 9M period stood at 6.2%, while 4Q trailing GDP growth has decelerated to 7.1% from 8.2% in the previous quarter (11.4% in 2021).
 
While GDP growth continues to be mainly driven by domestic demand, the contribution of net exports remained slightly positive. The moderation in GDP growth seems broad-based, as YoY growth in the industrial sector eased to 0.3% from 8.0% in 1H22, and to 6.9% from 16.9% in the services sector (domestic trade, transportation and tourism), while the YoY contraction in the construction sector exacerbated to 14.1% from 8.9% in 1H22. On the other hand, other services sectors (e.g.: information sector, financial services, administrative services, etc.) seem robust with somewhat double-digit growth rates. We may argue that the loss of momentum in the industrial sector growth is mainly attributable to exports, as the private consumption growth was 19.9% YoY, implying that robustness in domestic demand is maintained. YoY investment growth turned negative to the tune of 1.3%, although this is attributable to the 19.9% contraction in construction related expenditures, while machinery-equipment investments rose by 14.3% YoY. Strong tourism sector seems to have kept the YoY growth in goods and services exports at 12.6% and the contribution of net exports remained positive at 0.6% as a result. That said, domestic demand made a 12.8% contribution to overall GDP growth, which means that inventory depletion erased a significant 9.6% from GDP growth. Note that inventories have been dragging GDP growth for the past 8 quarters in a row, and the negative contribution has actually remained around 10% level over the past 3 quarters. We find this hard to explain, which might be implying some sort of a statistical error in the breakdown of GDP growth.
 
The loss of growth momentum seems to persist in 4Q22. Manufacturing PMI remains below the 50-threshold since March (fell to 46.4 in October). In addition, there has been a considerable deceleration in electricity consumption recently (Jul: -5%% YoY, Aug: -2%, Sep: -6%, Oct:- 7%, Nov: -%7). Both of these suggest that the loss of momentum in IP growth persists in 4Q22, and likely to linger over the coming few months. As such, we expect GDP growth momentum to slow down to 1.0-2.0% level in 4Q22 (we may actually witness negative YoY growth in IP index). Considering the 7.6% GDP growth achieved in 1H22, this would still keep 2022 GDP growth at close to 5.0%, as our point-estimate stands at 4.8%.
 
Although the government may prefer to induce domestic demand through some credit expansion, we expect 2023 GDP growth to slow down to 2.0-2.5% levels. Despite the deceleration in loan rates recently, we have not observed a considerable acceleration in loan growth momentum. Yet, we believe that the government might opt to induce domestic demand through some form of a credit expansion, in addition to a planned fiscal expansion. This might actually revive domestic demand in 1Q23. Yet, we would not expect the robustness in domestic demand to be maintained throughout the whole 2023 as a result of the ongoing erosion in consumers' purchasing power. This, combined with an expected further slowdown in exports, compels us to expect a slowdown in GDP growth in 2023 to 2.0-2.5% levels.
 
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