The construction site of a new office building in Istanbul's business district of Sisli, Turkey, May 24, 2017.
The construction site of a new office building in Istanbul's business district of Sisli, Turkey, May 24, 2017.

Turkey's economy grew five percent in the first quarter of 2017 when compared to the same period last year, the Turkish Statistical Institute said on Monday.

The rise took GDP to 641.58 billion Turkish lira ($173.78 billion) at current prices, the report said.

The figure was higher than that forecast by Anadolu Agency's Finance Desk, which had predicted 3.8 percent growth.

Growth in the first four months of the year was 0.5 percentage points higher than in 2016, which stood at 4.5 percent.

In a forecast published on June 5, the World Bank predicted the Turkish economy would expand 3.5 percent in 2017, up from its 3 percent estimate in January.

Last year, Turkey's economy grew 2.9 percent, down from 6.1 percent in 2015 and 5.2 percent in 2014.

Deputy Prime Minister Mehmet Simsek said last Wednesday that the government predicted growth of 5 percent or more in the medium-term.

Commenting on the growth rate, Muammer Komurcuoglu, an economist at IS Investment, noted that it was higher than market expectations.

"The seasonally- and calendar-adjusted growth rate was 1.4 percent quarter-on-quarter, suggesting a strong recovery compared to the fourth quarter of 2016," he told Anadolu Agency.

Weak investment

Komurcuoglu said that private consumption at 3.1 percent, exports at 2.2 percent and public spending growth at 1.3 percent had contributed significantly to the better than forecast rate.

However, investment growth was relatively weak again.

"It seems that measures taken to support economic activity since the last quarter of last year are working through private-public spending," he said.

"We have not seen a strong revival in investment yet. Leading indicators suggest an acceleration in growth in the second quarter."

Analyst Enver Erkan, from KapitalFX, said the improved growth was a result of improved exports, government spending and household consumption.

"The leading indicators of the first quarter got better and better, month by month," he told Anadolu Agency. "Improvements in the consumer side thanks to a tax discount supported the growth of durable goods, automotive and furniture orders and sales."

"The ability of spending seems to be increased, which is a very good point for the overall growth outlook. External demand used to effect economic growth negatively, but its effect turned into positive, which is a result of the recovering European economies."

"Exports grew by 10.6 percent. This is mainly due to Europe's increasing income rather than the domestic currency's depreciation."

Stronger growth

Erkan also pointed to investment growth, which contributed just 2.2 percent to the overall growth rate.

"Domestic currency instability leads to industry importing more, rather than investment and production," he said.

"Credit guarantee fund's effect on investments should be positive in the upcoming quarters. For more sustainable growth, investments should be in the production of exportable, high value-added goods."

He predicted stronger growth in the second quarter.

Ziraat Bank economist Bora Tamer Yilmaz said investment would improve later in the year, replacing trade as the economy's growth engine.

"We see that industrial sectors, such as automotive, petrochemical, work with 100 percent capacity," he said.

He said there would be increased confidence and stability following April's constitutional referendum, leading to further investment.

"We may see Turkey grow by 7 percent in the third quarter," Yilmaz said.

Timothy Ash, a senior emerging market strategist at London-based BlueBay Asset Management, said the growth figures highlighted the "remarkable resilience of the Turkish economy – favourable demographics, strong banks, strong public finances, which allows fiscal space for easing."

Government action, including programmes to stimulate credit growth, had prompted the figures, as well as strong net exports on the back of increased demand in Europe and Turkish companies' reorientation to European markets.

Source: AA