Despite the currency crisis and high inflation, the Turkish economy grew surprisingly strongly in the second quarter. The gross domestic product increased by 3.8 percent in the April-June period compared to the same period last year, the statistics bureau announced Thursday. Economists surveyed had expected an increase of just 3.5 percent, after a 3.9 percent increase was sufficient in the first quarter.
Government incentives contributed to the growth ahead of the May elections, which President Recep Tayyip Erdogan won. In the past year and a half, it has doubled the minimum wage and spent record amounts on social benefits. As a result, the Turks consumed more, which boosted the economy. “Consumer spending has been exceptionally strong,” said economist William Jackson of Capital Economics. Before the elections, the central bank had cut interest rates for a long time in order to stimulate growth, exports and investment with cheap money.
Due to the continued high rates of inflation and the significant decline in the value of the national currency, the lira, the central bank has now changed its course. The main interest rate was raised from 8.5 to 25.0 percent. This is to combat inflation. Inflation is currently around 48 percent and, according to economists’ forecasts, should have risen to more than 55 percent in August.
Higher interest rates make the currency more attractive to investors. The Turkish lira has fallen about 70 percent against the dollar in the past two years. This makes imports more expensive for the country that is poor in raw materials and thus contributes to higher inflation.
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