No surprise: GDP of Turkey increased by 15.6% q/q in 3Q2020

Gross Domestic Product (GDP) of Turkey increased by 6.7% in the third quarter of the year 2020 (3Q2020) compared to the same quarter of the previous year according to the unadjusted terms. In 2Q2020 when the Covid-19 was declared as pandemic by WHO, GDP contracted by 11% compared to previous quarter (q/q) and 9.9% compared to the same quarter of the previous year (y/y) due to the Covid-19 based tight restrictions.

In seasonally and calendar-based adjustments GDP expanded by 15.6% q/q in 3Q2020 while the year-on-year expansion realized as 6.5% in calendar adjusted figures. Before the announcement, CEFIS of Bilgi University forecasted q/q expansion of 15.85%.

In the graph below, orange colored bars show q/q percentage changes in seasonally and calendar adjusted production-modelled-GDP figures while blue bars represent the y/y percentage changes in the calendar adjusted figures.

Source: TUIK

In the graph above, we can see that 31.1% q/q increase in the industrial sector and 33.4% q/q increase in the services sector were the main drivers of the q/q GDP growth in 3Q2020. Taxes less subsidies on products expanded 8.7% q/q in 3Q2020. Worth to remind that tax delaying in 2nd quarter to the 3rd quarter influences aforementioned revenue increase.

On the other hand, the graph below shows the quarterly changes in consumption which supports production. The orange colored bars show the quarterly changes in calendar and seasonally adjusted consumption-based GDP components while blue bars show yearly changes in calendar adjusted GDP components.

Source: TUIK

In the graph above, we understand that a 30.1% q/q increase of exports of goods and services in 3Q2020 supported both industrial and services sectors on the production side. Moreover, we see that a 27.6% quarterly increase in imports of goods and services supported the exports of goods and services in 3Q2020. Because we all know that Turkey’s industrial production depends mostly on imports of intermediate goods. Furthermore, gross fixed capital formation rising by 20.8% q/q in 3Q2020 shows the rise in investment expenditures to meet the demand and increase the stocks.

The leading indicators regarding 4Q2020 comprising the period of October-November-December (exports, real sector confidence index, capacity utilization of manufacturing sector, manufacturing sector PMI) signal that;

. the industrial sector supports the industrial sector as well as GDP growth in the period of October-November, and

. the services sector (sectoral confidence indices, SAMEKS indices, tourism) puts downward pressure on GDP growth compared to 3Q2020 due to the latest engaged COVID-19 related restrictions.

Fulya Gürbüz, Ph.D.

Main factor in price increases is the depreciation of the Turkish lira

Turkish Statistical Institute released consumer (CPI) and domestic producer price (D-PPI) indices of May 2020. As can be seen in the graph above, monthly changes of both inflation figures have been rising continuously since December 2019.

CPI (2003=100) increased by 1.36% on monthly basis on the previous month by 1.36%, on December of the previous year by 4.57%, on same month of the previous year by 11.39% and on the twelve months moving averages basis by 12.10% in May 2020.

D-PPI (2003=100) increased by 1.54% on monthly basis, increased by 6.15% on December of the previous year basis, increased by 5.53% on same month of the previous year basis and increased by 9.14% on the twelve months moving averages basis in May 2020.

However, the year on year changes in both indices look more moderate:

If you pay attention to the graph above, I try to explain the year-on-year changes of inflation figures with the changes of USD/TRY. Why do I do that?

Because Turkey’s production mechanism depends mainly on intermediate goods imports, and payments are made in foreign currencies which are mainly in US dollars and Euro. Therefore, the price rise of imported goods in terms of Turkish lira is the most important factor affecting production costs and thus output prices.

As can be seen in the graph below, another important factor that causes price increases is the increase in taxes on goods.

Fulya Gürbüz, Ph.D.