Turkey’s gross domestic product grew an annual 7.4% in the third quarter boosted by exports and demand, official data released Tuesday show. The overall growth rate this year is now likely to reach a flashy 10%, yet the prospects for next year appear dim as Turkey keeps accumulating risks amid the slump of the Turkish lira and unruly inflation.

The third-quarter growth rate owes partly to the base effect of the relatively low growth of 1.8% in the same period last year, but also to a recovery in exports and tourism driven mainly by the depreciation of the lira and a return to a relative normal since the launch of COVID-19 vaccinations, including a revival in the services sector.

Inflation-driven spending has helped boost industrial activity as well. Turkey’s Central Bank has heeded President Recep Tayyip Erdogan’s pressure to lower its policy rate to stimulate growth rather than raising the rate to rein in inflation, which is just shy of 20%. To protect their money against inflation, consumers have rushed to buy durable and other goods before prices rise further and producers have turned to stocking up on raw materials, contributing to the industrial revival.

Turkey’s GDP grew 7.4% in the first quarter and 22% in the second, according to revised figures released Tuesday. The economic expansion is expected to continue in the last quarter, albeit at a slower pace, and result in an overall growth rate of about 10% for the year. The International Monetary Fund revised its growth forecast for Turkey upward to 9% in October.

Brushing aside the lira’s nosedive and the rising inflation risk, Erdogan is bent on stimulating growth, hoping to bolster his sagging popular support ahead of elections in 2023. His economic policies, including the unconventional view that high interest rates are the cause of high inflation, have fueled Turkey’s risk premium, and a significant risk accumulation is clouding the country’s economic prospects for next year.


Written by Mustafa Sönmez