Turkey's GDP recorded an increase of 5.9% compared to the previous year in 4Q20 period, showed a higher performance from all G-20 countries except China. In the last quarter, when industrial production and loan growth were the driving forces, it grew by 1.7% according to periodically adjusted data. It was one of the few economies that could achieve growth in the pandemic year with a growth of 1.8% throughout the year.
Credit growth, which is among the main drivers of growth, was actually a continuation of the credit boom brought about by the low interest policy in 3Q20. During this period, from the August to the mid-4Q20 period, the implementation of loose policies and the encouragement of loan growth caused the TRY to weaken rapidly and inflation increased. At the same time, financial fragility increased with the regulations aimed at providing loan growth on banks until November, when the transformation in economic policies started.
If we look at the details of the growth; Household consumption expenditures increased by 8.2% in 4Q20 compared to the last quarter of the previous year. Government spending increased by 6.6% in 4Q20, while gross fixed capital formation (investments) grew by 10.3%, reflecting the contribution of high loan growth. While there was no growth in exports, imports grew by 2.5%. The contribution of net exports to growth decreased both in 4Q20 and in 2020 (15.4% contraction in exports, 7.4% growth in imports in 2020). In 2020, gross fixed capital formation reflected the credit growth that was effective for most of the year by 6.5%, while household consumption expenditures grew by 3.2% and government spending by 2.3%. In growth rates according to sectoral and economic activity branches; With the conditions brought by the pandemic conditions and the new normals, the highest growth was realized as 21.4% in finance and insurance services and 13.7% in information and communication activities. Professional, administrative and support service activities decreased by 5.2%, services by 4.3%, and the construction sector by 3.5%, again reflecting the epidemic conditions and the effects of restrictions.
In November, the new Central Bank Governor Mr. Naci Ağbal made the monetary policy orthodox, while he increased the interest rates up to 17% and tightened the policy. As a reflection of the tightening in monetary policy, loan growth is expected to be balanced within the framework of increasing interest rates as required by the monetary transmission mechanism. In addition to the tightening financial conditions; The restrictions stemming from Covid-19 have come into effect as of the last month of the year and at this point, the loss of activity and employment in the service sector may negatively affect growth. On the other hand; Depending on how effective the vaccination will be, the demand that may increase due to the economic activities and economic recovery, as well as the recovery that can be experienced in the tourism season due to normalization may have a positive effect on growth. Although financial conditions remain tight until the last part of the year is the base scenario, if there is a fall in inflation that will allow interest rate cuts, growth can be fed a bit from the credit channel. Within all these assumptions and deviation possibilities, we set our 2021 growth expectation at the level of 4.8%, a level close to the market consensus.
