ISTANBUL: Turkiye’s economy probably slowed in the second quarter, with activity set to remain subdued for the rest of the year, as officials seek to put growth on a more sustainable footing by raising interest rates.

       Gross domestic product (GDP) likely expanded 3.1% year-on-year, according to the median forecast in a Bloomberg survey of analysts, the weakest level since the Covid-19 pandemic and down from 4% between January and March.

       Growth was probably 2.3% higher quarter-on-quarter in seasonally and working-day adjusted terms, as household consumption remained strong through May, thanks to heavy pre-election spending by president Recep Tayyip Erdogan.

       Some analysts believe that spending was enough to boost growth in year-on-year terms in the quarter. The estimates in the survey ranged from 1.2% to as high as 5.3%.

       Erdogan, who won reelection to take his rule into a third decade, has since signalled a shift away from unorthodox policies –including ultra-low borrowing costs – that he championed in recent years but which caused foreign investors to flee the US$900bil economy.

       The president’s new economic team, led by Finance Minister Mehmet Simsek and central bank governor Hafize Gaye Erkan, is trying to slow inflation of almost 50%, which has inflicted a severe cost-of-living crisis on Turks.

       Still, Erdogan may encourage them to strike a balance and boost growth ahead of local elections in March. The president wants to recapture the mayor’s seat in Istanbul after suffering a stinging defeat there four years ago.

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       Leading indicators, including retail sales, suggested consumption remained strong in the second quarter, though industrial and export sectors slowed. Industrial production still shows limited recovery from February’s devastating earthquakes.

       On Monday, Simsek signalled there’ll be little improvement this year. “Disinflation and structural change in the economy will speed up,” he said in a post on social media platform X, formerly known as Twitter.

       Goldman Sachs Group Inc forecasts that Turkiye will enter a recession in the second half of 2023. “Policy, both monetary and fiscal, has shifted significantly tighter,” Goldman analysts including Clemens Grafe said in a note last week.

       “We expect Turkiye’s second-quarter GDP announcement to show that economic activity has slowed down slightly, even as it was supported by elections-related spending through May.

       “We see fiscal stimulus taking a step down in the third quarter, while domestic demand is likely to remain strong even as price gains are projected to pick up through the rest of the year,” said economist Selva Bahar Baziki.

       That shift gained impetus when the central bank hiked interest rates by 750 basis points, far more than expected. — Bloomberg