Turkish GDP growth in the first quarter came in at 5.7% on a year-on-year basis, aligned with both the market consensus and our call. This came on the back of continued strength in domestic demand and a positive contribution from net exports. First-quarter GDP translated into a quarter-on-quarter growth rate of 2.4% after seasonal adjustments, showing a gain in momentum when compared to a relatively modest reading of 1.0% in the fourth quarter. The accelerating sequential performance is attributable to the positive turn of investments and government spending after a negative reading a quarter ago, as well as the supportive impact of net exports despite the contractionary effect of inventory build-up and moderation in private consumption.
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Private consumption has lost steam at its lowest level since the pandemic but has remained robust at 7.2% YoY. Continuing strength likely reflects forward-brought consumption ahead of local elections in addition to the impact of wage hikes, accelerating credit card expenditures, and consumer loan growth. Accordingly, it has lifted headline GDP by 5.5 percentage points (ppt) despite the Central Bank of Turkey's rate hikes.
Investment appetite has been robust, with 10.3% YoY growth translating into a 2.6ppt contribution to GDP expansion. This is mainly because of continued double-digit growth in machinery equipment (11.9% YoY in the first quarter) and an acceleration in construction investments to 9.6% YoY.
Public consumption has continued to contribute positively to headline GDP since early 2021, and accelerated compared to the previous quarter with a 3.9% YoY increase – lifting first-quarter growth by a mere 0.5ppt.
Overall, economic activity in Turkey was stronger in the first quarter due to wage hikes and fiscal stimulus. However, following the surge in loan demand in the run-up to the local elections, the CBT has come forward with policy action – including an unexpected rate hike in March, and moves to control both the Turkish lira and FX lending growth as well as sterilizing the liquidity in the system.
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