Turkey’s economy grew 1.8 percent in 2020 as a whole, emerging as one of only a few globally to avoid a contraction due to the coronavirus pandemic, annual data showed on Monday.
Propelled by a burst of credit in mid-2020, fourth-quarter gross domestic product (GDP) grew 1.7 percent from the previous quarter on a seasonally and calendar-adjusted basis, the Turkish Statistical Institute said.
A surge in GDP growth in the second half of the year that surpassed Turkey’s potential rate was driven by a near doubling of lending by state banks to face down the initial wave of the virus.
While outperforming all emerging market (EM) and Group of 20 (G20) peers except China, Turkey’s growth came at a price: The cheap lending accelerated a record drop in the lira, drew down the country’s foreign currency reserves and helped push inflation to 15 percent. Also, few jobs were created.
The recovery was “unbalanced and ultimately exacerbated some of the country’s external vulnerabilities,” said Jason Tuvey, senior EM economist at Capital Economics.
Financial sector activity surged more than 21 percent last year, driving overall growth, the data showed. Tourism and other services activity dropped by 4.3 percent and the construction sector, an engine of growth in years past, shrank 3.5 percent.
The lira firmed to 7.351 against the dollar after the GDP data and was one percent stronger on the day.
The volatile currency tumbled last week after a rally that began in early November when Turkish President Recep Tayyip Erdogan promised a new market-friendly economic era. A new central bank chief has since hiked interest rates, cutting credit dramatically.
Finance Minister Lutfi Elvan, appointed in November, said on Twitter Monday that Turkey would prioritize price stability this year. Analysts say the economy should expand by roughly 5 percent in 2021 despite tight monetary policy.
World economies mostly contracted and tumbled into recessions last year, with emerging and developing nations shrinking by some 2.4 percent, according to the International Monetary Fund.