Turkey retail sales jump record 11 percent as economic revival builds

(Updates story with industrial output data in sixth paragraph.)

Retail sales in Turkey surged by 11 percent in December – the biggest annual increase since records began in November 2016 - in a further sign that the economy is rebounding strongly from a currency crisis.

Industrial output also jumped, led by production of capital and intermediate goods.

Turks are spending more on items such as clothing and electrical goods, and manufacturers are responding by increasing output, after the central bank slashed interest rates and inflation more than halved from a peak of 25.2 percent in October 2018, two months after the currency crisis struck. The recovery is being helped by cheap lending from state-run banks and tax cuts.

Purchases of non-food items, excluding automotive fuel, led the increase in retail sales, jumping by an annual 15.5 percent, the Turkish Statistical Institute reported on Thursday. The figures represent sales volume and are adjusted for inflation. Purchases via mail order and the internet jumped by 56 percent.

But some economists are warning that measures taken by the government to spur industrial and retail activity, such as dishing out low-cost loans, risk a repeat of the economic overheating that contributed to the currency crisis. The International Monetary Fund and credit ratings agencies have called on Turkey to abandon short-term, unorthodox measures to stimulate the economy and substitute them for structural reforms that will create sustainable growth. 

Industrial output also jumped by an annual 8.6 percent in December in the fourth-straight month of advances, the institute said on Monday. The gain was the highest in almost two years.

Turkish President Recep Tayyip Erdoğan said on Wednesday that the country's economic recovery had confounded the warnings of doom-mongers, who said interest rate cuts risked spurring inflation and losses for the lira. He said borrowing costs in the country would continue to decline and inflation, currently 12.2 percent, would slow to below the government's goal for 2020 of 8.5 percent.

The central bank has cut interest rates to 11.25 percent from 24 percent in July, when Erdoğan sacked and replaced its governor for failing to follow government recommendations. Erdoğan says higher interest rates are inflationary, a view that jars with conventional economic theory.