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Turkey economy grew 7.4 percent in Q3, boosted by demand and exports

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Turkey’s economy grew 7.4 percent year-on-year in the third quarter, meeting expectations on the strength of retail demand, manufacturing and exports, official data showed on Tuesday, but the figures failed to ease concerns about policy settings, Reuters reported.

Gross domestic product (GDP) expanded 2.7 percent compared with the previous quarter on a seasonally and calendar-adjusted basis, data from the Turkish Statistical Institute showed.

The data emerged against a background of a slide in the lira, which has dropped as much as 45 percent against the dollar this year. The lira weakened 0.8 percent  to 12.9 after the data was released and stood at 12.86 at 0726 GMT.

President Recep Tayyip Erdoğan, who is staunchly against higher interest rates, has said Turkey will prioritize growth, employment and investments, suggesting the exchange rate and inflation could drift even higher.

The central bank has slashed its policy rate by 400 basis points to 15 percent since September as part of an easing cycle which economists say is reckless given inflation soaring to 20 percent  and the tumbling lira.

“Lower rates might deliver high real GDP growth but at the price of a weaker currency, higher inflation and longer term concerns about macro financial stability,” said Tim Ash, a veteran Turkey watcher at BlueBay Asset Management.

“The longer these settings are maintained the greater the risk of a systemic economic crisis in Turkey – particular risks there of inflation spiraling out of control and a bank run.”

In a Reuters poll, the economy was forecast to have expanded 7.5 percent in the third quarter with full-year growth seen at 9.5 percent. However, the lira’s recent crash and soaring inflation are expected to hinder growth in coming months.

Second quarter growth was revised to a massive 22.0 percent annually from an initial 21.7 percent, rebounding after a sharp slowdown a year earlier due to COVID-19 restrictions.

The Reuters poll had also forecast that the economy will grow 9.5 percent in 2021 as a whole, but the weak lira and annual inflation of around 20 percent  was seen hindering growth in the coming months.

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