From growth for 2021 to inflation and exports, Turkey will have a busy economic agenda this week with several crucial data announcements, while a new energy tariff is due to kick in to bring relief to households and businesses reeling from soaring electricity bills.
Eyes will also be on the developments in Ukraine amid Russia’s invasion of its southern neighbor, given Turkey’s close links in trade, energy and tourism.
Data on Monday is likely to show that Turkey’s economy registered double-digit growth in 2021 after rebounding strongly from the coronavirus pandemic.
Surveys expect the gross domestic product (GDP) to have expanded around 9% in the fourth quarter and approximately 11% in the whole year.
Yet, the economy is seen cooling off this year due to soaring inflation and recent volatility in the Turkish lira.
Turkey was one of the few countries to expand in 2020, thanks largely to cheap loans following a series of rate cuts by the central bank to stave off the economic impact of the pandemic.
Growth picked up pace again in 2021 as COVID-19 restrictions were largely lifted. But a currency slide at the end of the year has disrupted growth expectations for this year.
Double-digit growth
The median estimate in a Reuters poll of 25 economists for 2021 GDP growth stood at 11%, with forecasts ranging between 6% and 11.8%. The Reuters poll put growth in the fourth quarter at 9%, according to the median estimate of 13 economists, in a range of 6.3% and 11.9%.
An Anadolu Agency (AA) survey sees the growth at 8.7% in the last three-month period and 11.1% for the whole year.
The government has also put forward estimates that the economy would record double-digit growth, higher than its previous forecast of 9%.
GDP growth in 2022 is expected to be 3.5%, based on the median estimate of 23 economists in the Reuters poll. Predictions ranged from 0.8% to 5.2%.
Growth stood at 7.4% in the third quarter of 2021, and a massive 22% in the second quarter mainly due to the so-called base effect created by the pandemic-related downturn in 2020.
Inflation reading
The economic boom in 2021 was overshadowed by double-digit inflation,which soared after the Central Bank of the Republic of Turkey (CBRT) began cutting its policy rate in September.
The inflation data for February is due on Thursday after the consumer price index (CPI) soared to a 20-year high of nearly 49% in January.
The lira has been broadly stable since the start of the year following a 44% decline in 2021 and has been hovering just below 14 against the United States dollar, before briefly topping the level on risks amid Russia’s military intervention in Ukraine.
The authorities have been pursuing a new economic policy of low interest rates to boost credit, exports and investments, saying it would help the country weather inflation.
President Recep Tayyip Erdoğan says the policy will also eventually help Turkey solve its chronic current account deficit problem and contribute to stabilizing the lira.
Readjusted energy tariffs
Erdoğan has said the government would introduce a set of measures aimed at bringing some relief for households and businesses reeling from surging power bills, including readjusting the level under which higher electricity tariffs for households using more energy kick in.
Households and businesses have been hit with sharp hikes in energy prices after authorities raised electricity tariffs on Jan. 1, spiking prices by more than 50% for many homes and as much as 127% for businesses and high-consumption households.
The authorities are readjusting the level under which higher electricity tariffs for households using more energy kick in. The readjusted tariffs are expected to enter into effect as of Tuesday.
Civil society organizations will no longer pay the higher energy tariffs that apply to businesses and some small businesses will also be able to benefit from readjusted tariffs.
Erdoğan has said some 4 million households in the country of more than 84 million people would receive state subsidies to help with high natural gas and electricity bills.
“We continue to support households in electricity and natural gas. We are listening to the voice of our nation and finding solutions to their problem,” the president said on Feb. 16.
He has been reiterating that high inflation was “temporary” and that his government would bring it under control.
“Our most important problem is high inflation. Hopefully, we will overcome it and see it go down month by month,” Erdoğan said.
Prices have soared due to Turkey’s dependence on imports of energy, raw materials and many food supplies.
Earlier this month, the government lowered the value-added tax (VAT) on basic food supplies to 1% from 8%.
Trade data incoming
Trade Minister Mehmet Muş will Wednesday announce preliminary foreign trade data for February.
Turkey made a buoyant start to 2022 as its exports hit an-all time monthly high in January, surging by 17.6% year-over-year to $17.6 billion.
But the country’s trade deficit leaped on the back of energy imports that nearly quadrupled compared to a year ago.
The shortfall jumped 240.7% year-over-year in January to $10.44 billion, after imports spiked 55.2% to $28 billion due to the unexpectedly harsh winter conditions and rising energy prices.
The country’s exports reached a record $225.4 billion last year, with a target of $250 billion and $300 billion set for 2022 and 2023, respectively.
MPC meeting
Among others, unemployment data for January is due to March 10. The jobless rate was down 0.1 percentage point from a month earlier to 11.2% in December, the latest data showed.
A day later, eyes will be on turnover indices, retail sales and industrial production index.
The central bank will be holding its third Monetary Policy Committee (MPC) meeting of the year on March 17.
To support the government’s new drive, the central bank had brought down the benchmark policy rate by 500 points since September to 14% but paused the easing cycle in January and kept the one-week repo rate unchanged this month again.
Russia-Ukraine conflict
Turkey is facing a tough balancing act in the Ukraine-Russia conflict as it has good ties with both countries and the standoff bears risks, as its Black Sea neighbors are also among its most important economic partners.
The conflict carries the potential to harm Turkey’s economy, given its deep energy, defense and trade relations, while both markets are crucial sources of tourism.
The current risk has the potential to negatively affect the country’s inflationary balances, as it adds to the concerns regarding energy import costs.
Oil prices rose to their highest since 2014 after Moscow ordered troops into Ukraine, adding to supply concerns that have pushed prices above $100 a barrel.
Russian natural gas made up around 45% of import-dependent Turkey’s gas purchases last year, which hit a record level as a result of drought and a related rise in gas-driven power production.
Turkey also imports crude oil from Russia, with annual amounts varying between 10% and one-third of its crude imports.
Ankara has been looking to strike shorter-duration gas deals with Moscow to relieve import costs.