Turkey emerges from COVID-hit 2020 with 1.8% economic growth

Turkey’s economy grew a less-than-expected but still hot 5.9% in the fourth quarter of 2020 and 1.8% in the year as a whole, data showed on Monday, emerging as one of only a few globally to skirt a contraction amid the coronavirus pandemic.

Propelled by a burst of credit in mid-2020, fourth quarter GDP grew 1.7% from the previous quarter on a seasonally and calendar-adjusted basis, the Turkish Statistical Institute said.

A surge in gross domestic product (GDP) growth in the second half of the year that surpassed Turkey’s potential rate was driven by a near doubling of lending by state banks to face down the initial virus wave.

While outperforming all emerging market (EM) and G20 peers except China, Turkey’s growth came at a price: the cheap lending accelerated a record drop in the lira, drew down FX reserves and helped push inflation to 15%. Also, few jobs were created.

In a Reuters poll, GDP was forecast to have expanded 7.1% year-on-year in the fourth quarter, despite new curfews and curbs on the service sector to address a second COVID-19 wave, and 2.3% for the whole year.

World economies mostly contracted and tumbled into recessions last year, with emerging and developing nations shrinking by some 2.4% according to the International Monetary Fund.

Financial sector activity drove growth in 2020, surging 21.4%, the data showed, while service sectors dropped by 4-5%.

The lira firmed to 7.3175 against the dollar after the GDP data and was 1.5% stronger than Friday’s close.

The volatile currency tumbled last week after a rally that began in early November when Turkish President Tayyip Erdogan promised a new market-friendly economic era.

A new central bank chief has since hiked rates sharply and credit has dropped off dramatically.

The major EM economy has cooled in recent years from an average 5% growth rate in the last two decades. The rate plunged by 9.9% annually in the second quarter as the pandemic bit, but rebounded sharply by 6.7% in the third.

Ankara is considering lifting some of the latest virus restrictions as of this month. Analysts say the economy should expand by roughly 5% this year despite tight monetary policy.

Main Photo: A man wearing a protective face mask walks in front of the Turkish flag amid the ongoing coronavirus COVID-19 pandemic in Istanbul, Turkey. EPA-EFE/SEDAT SUNA