Turkish economy grows 3.8% in Q2, but industry faces decline

Turkish economy grows 3.8% in Q2, but industry faces decline
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The growth in Turkey's economy was driven by robust consumer spending, but concerns arise from a contracting industrial sector and decreasing exports

Turkey's economy expanded by 3.8% in the second quarter, compared to the same quarter of the previous year, according to the statistics, released by The Turkish Statistical Institute (TUIK) on Thursday.

While the overall economic outlook was positive, the industrial sector contracted by 2.6%, presenting concerns for some experts. This downturn in the industry marks the third consecutive quarterly decline, signaling a trend that could potentially persist.

In the second quarter, the domestic GDP witnessed a 3.5% rise compared to the previous quarter. The data further illustrated that consumer spending was the primary driver of the economy for two consecutive quarters.

Specifically, the final consumption expenditure of resident households surged by 15.6% in Q2 2023 compared to the same period in 2022. Meanwhile, the government's final consumption expenditure increased by 5.3%, and gross fixed capital formation grew by 5.1%. Importantly, while imports of goods and services spiked by a significant 20.3%, exports decreased by 9%.

This sharp rise in imports during Q2 marked the highest surge in three years. On the flip side, the decline in exports for three straight quarters represented the longest contraction streak since the pandemic.

Breaking down the contribution to growth, domestic consumption accounted for a 10.7-point boost. Government spending and investments contributed 0.7 and 1.3 points, respectively. In contrast, net exports subtracted a significant 6.3 points from the growth figure, and inventory changes took away another 2.6 points.

From a sectoral perspective, while industry faced a downturn, the growth in the services sector stood out. A deeper dive into the activities constituting the GSYH showed notable increases in various sectors in Q2: other service activities (6.6%), services (6.4%), construction (6.2%), public administration, education, human health, and social services (5.1%), financial and insurance activities (4.9%), real estate activities (3.2%), information and communication (1.3%), and agriculture (1.2%).

One of the highlights of the Q2 data was the upward momentum in machinery and equipment investments, which soared by 7.4%. This marked the highest increase over the last three quarters. Additionally, construction investments saw a moderate rise of 2.5%.

Earlier indicators, including retail sales, had already highlighted robust household consumption for the quarter. Retail sales in May surged by a substantial 30% year-on-year, while June witnessed a 28.5% uptick.

On the industrial production front, indicators suggested limited recovery post the devastating earthquakes in February. April recorded a decline of 1.2% in industrial production year-on-year, while May and June experienced meager rises of 0.2% and 0.6%, respectively.

Exports faced a slump in Q2. As per TUIK data, the total exports for Q2 2023 plummeted by up to 6%, dropping to $61.74 billion compared to the previous year.

In the wake of these numbers, economists and industry leaders are eagerly anticipating the government's strategies to boost the industrial sector and stabilize exports in the coming months.