TURKEY - EKSPRES INVEST: Macro - GDP Growth

Stock build up and public investments are the main triggers

Slight recovery in economic activity is reflected in the second quarter national income accounts results with GDP growth surpassing the market consensus of 3.6% and our expectation of 3.8%. GDP in 2Q expanded by 4.4%, while 1Q GDP growth was revised down to 2.87% from 3%. Seasonally adjusted GDP generated 2% growth over 2Q, on top of 1.5% in 1Q, yielding an annualized rate of %7.2% for the year as a whole. We expect this performance to reverse in the second half of the year.

Main contributors were stock build up and public investments, with 2.3pps and 1.4pps out of 4.4% y/y growth coming from those components respectively. Domestic demand recovery was visible in 5.1pps contribution to overall GDP growth, rising from 3.5pps in the previous quarter, while foreign demand was the main dragging item with 3pps negative contribution. As for production side, service sector was again the key driver with 5.4% growth and 3.1pps contribution. On the other hand, industrial production and agriculture both rose by 6% over last year, adding 1.65pps and 0.5pps respectively.

Recovery in domestic demand was partly offset by deterioration in foreign demand and is likely to do so in the remaining quarters. Main drivers of 5.1% growing domestic demand has been 5.6% rising private consumption and 36.7% rising public investments. Private investments on the other hand posted 2% decline over previous year, slashing 0.5pps from overall GDP growth. Early indicators of private investments like capacity utilization, capital goods production and the like are pointing to a lasting recovery in the third quarter of the year. On the negative side, foreign  demand is likely to deter overall performance as demand recovery continues to push imports higher, while weak global demand does not allow a considerable pick up in exports. As we see foreign demand contribution deteriorating going forward and do not expect such strong public investments and stock build up in the remaining quarters, we did not need to revise up our GDP growth estimate due to higher than expected 2Q outcome and maintain our annual GDP growth estimate of 3.5%.