Turkey Exceeded Growth Expectations: Is GDP just a number?

This week, TURKSTAT released its growth data for 2023. The Turkish economy grew 4.5%, exceeding consensus expectations of 3.9%. This growth rate meant that Turkey was among the fastest-growing countries in 2023. Yet, this might not be entirely good news. The main reason for the faster growth rate was the delayed monetary tightening in Turkey compared to the US and EU, as a result of election cycle economics. This faster-than-expected growth rate also signals that monetary policy has not yet been very effective. However, it is important to note that monetary policy often works with long lags, and considering the tightening was carried out only in the second half of the year, much of its effects are yet to be seen. This data also increases the likelihood of more rate hikes after the local elections at the end of March. The growth goal as specified by the medium-term plan of Turkish economic policymakers was 4.4%.

Inspecting the composition of growth is also crucial. Growth was fueled mainly by domestic consumption, as it reached 59% of GDP. This is bad news as consumption is usually a less productive element of spending, compared to investments. Also, domestic consumption might contribute to Turkey's current account problems. However, the data shows the effects of the monetary tightening as growth slowed to 4% in the last quarter, and the share of domestic consumption within GDP decreased. A Reuters poll expects Turkish growth to cool down to 2.9% in 2024, as the effects of monetary tightening will be felt throughout the economy.

Is GDP growth just a number?

However, it should be noted that a high rate of GDP growth is not by itself enough for the well-being of a country's citizens. In the case of Turkey, many people are left worse off as a result of the economic policy of the past few years, facing a cost of living crisis and increasing inequality. Even though the Turkish economy achieved its best GDP per capita so far, and crossed the 1 trillion mark for the first time, many of its citizens would not agree they have never been in better shape, as the minimum wage levels sunk below poverty levels. Therefore, even though growth numbers look good on charts and headlines, well-being should replace the policymaker's end goal of welfare. Especially considering the exclusive nature of economic growth in Turkey over the last few years, policymakers should remember that GDP is only one variable of a complicated equation, and the distribution of the pie matters just as much as the size.