Turkish economic growth climbs 6.7 percent on credit boom

Turkey’s gross domestic product expanded by an annual 6.7 percent in the third quarter of the year, growing at a faster pace than emerging market peers.

Growth was led by the finance industry, which expanded output by an annual 41 percent on the back of a massive expansion in credit, according to data published by the Turkish Statistical Institute on Monday. Household consumption rose by 9.2 percent and manufacturing grew by 8 percent.

Turkey’s government spurred economic activity this year by instructing state-run banks to lend at below market rates of interest and coercing other lenders into slashing borrowing costs. The initiative was backed by the central bank, which kept interest rates at below annual inflation and rewarded banks for achieving loan growth goals.   

GDP was expected to increase by an annual 4.8 percent in the quarter, according to the median estimate of 14 economists surveyed by Reuters. A poll by the state-run Anadolu news agency predicted growth of 5 percent.

The expansion in Turkey’s economy was accompanied by a a slump in the value of the Turkish lira, which has lost about a quarter of its value this year and a sharp deterioration in the trade balance, spurred by demand for imports. The losses for the lira and double-digit inflation have prompted the central bank to increase interest rates to 15 percent from 8.25 percent since September.

The economy grew by 15.6 percent in the third quarter compared with the previous three months, the institute said. The economy had contracted by an annual 9.9 percent in the second quarter due to the impact on activity caused by the COVID-19 pandemic.

The lira gained by 0.1 percent to 7.8281 per dollar after the data was published, little changed from earlier.

The foreign trade deficit widened by 76 percent to $40.3 billion in the first 10 months of the year, the statistics institute said in a separate report on Monday. In October alone, the deficit grew by an annual 34 percent, as imports rose by 8.4 percent to $19.7 billion, outpacing a 5.6 percent increase in exports to $17.3 billion.