Rebound in early 2017, but for how long?


A series of shocks slowed economic growth sharply to +2.9% in 2016 from +6.1% in 2015. Notably, the failed coup attempt in July damaged confidence so that real GDP dropped by -1.3% y/y in Q3. And a severe drop in tourist arrivals (see Figure 2) against the backdrop of numerous terrorist attacks and a Russian travel ban (implemented in late 2015, repealed in July 2016) sent real exports down by -2% in full-year 2016.


In Q1 2017 growth rebounded to +5% y/y, beating consensus and our expectations. Unexpectedly strong rises in private consumption and exports were the main triggers for the surprising Q1 gains. Private consump¬tion was up by +5.1% y/y on the back of accelerating credit expansion and strong wage gains, although the strong increase surprised, given the deepening drop in retail sales, at -2.3% in Q1 (after -1.7% in Q4), and ongoing weak consumer sentiment (Turkstat’s consumer confidence index averaged 66.8 in Q1, vs. 68.8 in Q4 and an average 73.0 since 2011; see Figure 3). Public spending surged by +9.4% y/y in Q1 while fixed investment edged up slightly to +2.2% y/y. The TRY's slide and new automo¬bile production sent real exports soaring by +10.6% y/y in Q1, much faster than leading balance-of-payment data had indicated. In contrast, import growth was weak at +0.8% y/y despite boom¬ing domestic demand. As a result, net exports added +2.1pp to Q1 growth. We have revised up our full-year growth forecasts to +3.7% in 2017 and +3% in 2018.