Turkey’s economy bouncing back with 10% growth

Turkey’s economy is bouncing back from a pandemic-induced slump with close to 10 per cent growth expected this year as manufacturing and consumption soar, but the boom is feeding into - and in turn being eroded by - double-digit inflation.

Analysts have ratcheted up expectations for both economic indicators, meaning President Tayyip Erdogan will probably have to wait longer for the interest-rate cuts he has publicly suggested should happen in September.

On Wednesday, data is forecast to show the economy grew 21.7 annually in the second quarter, teeing up GDP growth of 8 per cent or more for 2021, according to a Reuters poll.

On Friday, August’s inflation reading is expected to stay close to the 18.95 per cent logged in July, driven by consumer demand, lira depreciation that has raised import costs, and a worldwide rise in commodities prices that have left Turkey with some of the sharpest price rises globally.

Food, electricity and natural gas price pressures are mounting as economic activity rebounds to pre-pandemic levels, said William Jackson, chief emerging markets economist at Capital Economics.

“We think inflation will remain close to 19.0 per cent in the coming months and that an (interest-rate) easing cycle is unlikely to commence until the tail end of the year,” he wrote in a client note.

Wall Street bank Citi sees inflation ending the year at 17.5 per cent or higher.