Strong exports to push Turkey over 5% economic growth in 2021

Turkey expects its gross domestic product (GDP) to grow more than 5% this year, helped along by export growth of between 16% to 20% after a pandemic-hit 2020, the country’s treasury and finance minister said.

The economy would log double-digit GDP growth in the second quarter due to the so-called base effect, Treasury and Finance Minister Lütfi Elvan said in a televised interview on CNN Türk late Thursday.

The growth in the first quarter could come at a 5.5%-6% rate, Elvan said, stressing the strong performance of exports as well as industry.

He noted that the economic activity rebounded in the first quarter of 2021, especially in the industrial sector, and that production and trade are now in a better state than during the pre-pandemic period.

A Reuters poll of 34 economists, surveyed between April 6-13, generally shares Elvan’s optimism, with respondents expecting Turkey’s economy to expand by 4.8% on average in 2021, bolstered by 14.9% expansion in the second quarter due to a so-called base effect after a pandemic-hit 2020.

Turkey was one of only a few countries to avoid an economic contraction in last year’s coronavirus fallout. GDP grew 5.9% in the fourth quarter and 1.8% in 2020 as a whole. It contracted around 10% in the second quarter but recovered thanks to a burst of state bank lending in the second half of the year.

Defense and auto exports will help balance the large current account deficit, Elvan noted.

The deficit, the gap between what Turkey buys from abroad and what it sells to other countries, widened to $2.61 billion (TL 21.56 billion) in February, official data shows.

The 12-month rolling gap totaled nearly $37.8 billion. The current account recorded a deficit of $36.72 billion last year due mostly to a sharp rise in the trade deficit and declining tourism revenues, prompted by the pandemic.

An uptick in tourism revenue and exports are expected to narrow the gap in 2021 as a whole.

It is expected to stand at 3.2% of GDP in 2021 and 2.5% the following year.

Industrial and agricultural sectors are performing well in terms of production, Elvan said, noting that Turkey entered 2021 strongly thanks to the measures taken during the past year.

Strong foreign trade
He also pointed out that strong growth is expected on a global scale starting this year and that nearly half of the Turkish economy’s growth could come from foreign trade.

Stating that the export performance in the first quarter was also very good, Elvan cited a study that he said highlighted that “when the eurozone grows by 1 unit, our exports increase by 4 to 4.5 units.”

“There is a growth forecast of 4.4% for the growth of the euro area,” the minister said.

The EU is Turkey’s top market, accounting for almost half of the country’s exports. Sales to EU countries in April alone more than doubled, surging 128.4% year-on-year to $7.18 billion in a rebound from the pandemic low, official data shows. Overall exports surged by 109% in the month to $18.8 billion.

Exports from January through April were up by 33.1% to $68.75 billion, up from $51.64 billion in the same period last year.

Elvan said the growth in exports is expected to increase by 16%-20%, noting the country is likely to reach $200 billion worth of exports for the first time in history.

The outbreak led to a 6.26% drop in 2020 exports as Turkey closed the year with $169.5 billion in foreign sales. Imports were up 4.3% to reach $219.4 billion. The trade deficit widened by 69.12% to $49.9 billion.

The country aims to achieve a year-end target of $184 billion.

Elvan pointed out that countries will now turn to regional supply chains due to the difficulties they are experiencing amid the coronavirus pandemic.“Turkey’s strategic location, qualified human infrastructure, young dynamic population, as well as having a customs union agreement with the EU offers a very serious advantage.”

Inflation top priority
He stressed that the year 2021 will be a year of growth in which price stability is especially observed, nominal demand is managed successfully, and “our structural reforms are supported.”

Pointing out the importance of the fight against inflation in terms of achieving macroeconomic stability, Elvan said it is the number one priority in terms of managing the economy.

“You cannot solve this problem only with monetary policy. In the field of public finance, we have been giving the necessary support to our central bank, especially in price stability, since the day I took office.”

Elvan said that the Central Bank of the Republic of Turkey (CBRT) has maintained its tight monetary policy stance “at the moment,” after the bank held its key interest rate steady at 19% earlier in the day as expected.

He added that his ministry was closely monitoring loan growth and that macro-prudential measures may be taken.

The central bank Thursday repeated a pledge to keep the benchmark policy rate – the one-week repo rate – above inflation, which the bank expects to cool after having risen beyond 17% in April, its highest level in nearly two years.

The bank said it will maintain its current stance until inflation falls according to a forecast published last week, in which it predicted price pressure would ease beginning this month.

Last week, the monetary authority raised its year-end inflation expectations to 12.2% from 9.4%.

The central bank also said that past rate hikes – including as recently as in March – have begun to cool demand in the economy. It also dropped a reference made in April’s policy statement to “maintain the tight monetary stance.”