Potential Slowing Down of Turkey's Economic Expansion Predicted by Citigroup Following Impressive Q2 Performance
In July, Turkey's economy showed signs of slowing down, with only 18,000 new jobs created, according to recent data. This figure represents a decrease compared to previous months, indicating a potential downturn in the labour market.
Citi economists have attributed this slowdown to a decline in both manufacturing and labour market conditions. The Manufacturing Purchasing Managers' Index (PMI), a survey-based measure of factory output and orders, suggests a slower pace of contraction. The PMI remained below the 50 threshold that separates growth from decline in July, indicating a continued contraction in the manufacturing sector.
The leading export industries in Turkey, such as machinery, transport equipment, and other manufactured goods, are exposed to slowing growth in the European Union and the United States. This external factor is likely to have a significant impact on Turkey's economy, as these industries are crucial to the country's economic growth.
Despite the challenges, the Turkish economy expanded 4.8% year-on-year in the April-June period. However, the employment rate held steady at 49.1% in July, while the unemployment rate fell to 8%. This decrease in unemployment may be a result of people leaving the workforce rather than a sign of a strengthening economy.
The Turkish central bank took action to stimulate growth by reducing its policy rate by 300 basis points to 43% in July. This move was aimed at lowering borrowing costs and boosting investment.
Looking ahead, there is uncertainty about Turkey's economic growth rate in the second half of 2025. Despite extensive searches, no information could be found on Citigroup's forecast for Turkey's economic growth rate during this period.
Another concern is the elevated average consumer loan rates, which remained at 63.3% in the week ending August 22. This high rate may deter consumers from taking on debt, which could further slow down economic growth.
Moreover, machinery and equipment spending is unlikely to increase due to credit restrictions and tight financial conditions. This lack of investment could hinder the recovery of the manufacturing sector and the overall economy.
The decline in the Manufacturing PMI in July and August, along with weaker job creation, signaled a loss of strength in the economy. As Turkey navigates these challenges, it will be crucial for policymakers to implement measures to stimulate growth and create jobs.
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