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Turkey's GDP expanded 7.5% in Q3, 2021 growth at 9.5%

11/30/2021 | 12:08am EST

(Repeats with no changes to text)

* reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/econ-polls?RIC=TRGDPQ%3DECI poll data

ISTANBUL, Nov 24 (Reuters) - Turkey's economy is expected to have expanded 7.5% in the third quarter of the year and is seen growing 9.5% in 2021, a Reuters poll showed on Wednesday, but the lira's recent drop and soaring inflation are expected hinder growth in later months.

Turkey's gross domestic product (GDP) grew a massive 21.7% annually in the second quarter, rebounding after a sharp slowdown a year earlier due to the COVID-19 restrictions.

The median estimate of 15 economists in a Reuters poll stood at 7.5% for year-on-year growth in the third quarter of the year. Forecasts ranged between 5.1% and 11.4% growth.

The boom in the economy has fed into double-digit inflation, which has risen close to 20% in recent months and is expected to rise further as the central bank forges on with rate cuts.

The central bank has slashed its policy rate by 400 basis points to 15% since September as part of an easing cycle which economists say is reckless given soaring inflation and a lira that fell as much as 45% since the beginning of the year.

President Tayyip Erdogan, who is staunchly against higher interest rates, has said Turkey will prioritise growth, employment and investments over high borrowing costs and a low exchange rate.

Paradoxically, economists say the rate cuts could eventually have a negative impact on growth in coming months.

Such reductions in this environment are counterproductive, said Selva Demiralp, director of the Koc University-TUSIAD Economic Research Forum.

"If you cut the policy rate in an inflationary environment, there might initially be some positive impact on growth," she said, adding that the current situation in Turkey is a risk for growth and financial stability.

"Eventually, the increase in demand due to lower interest rates is immediately offset by the decrease in demand due to higher inflation and elevated risks," said Demiralp, a former U.S. Federal Reserve economist.

She described the central bank's latest moves as a "contractionary easing."

The median estimate of 15 economists for growth in 2021 as a whole stood at 9.5%, with forecasts ranging between 8.9% and 11%.

The government has recently said it expects to record double-digit growth this year, revising up an earlier estimate of 9%.

The Turkish Statistical Institute will announce third quarter GDP data at 0700 GMT on Nov. 30. (Reporting by Ali Kucukgocmen; Editing by Toby Chopra)

ę Reuters 2021
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