ISTANBUL (Reuters) -Turkey’s economy grew at a less than expected 2.1% in the third quarter as demand ebbed – especially in the services sector – under the weight of high interest rates, data showed on Friday.
Third-quarter gross domestic product (GDP) dipped by 0.2% from the previous quarter on a seasonally and calendar-adjusted basis, Turkish Statistical Institute (TUIK) data showed.
The major emerging market economy has cooled in the face of a monetary tightening campaign that began in June 2023, with the central bank having hiked rates to 50% from 8.5% in order to rein in inflation, which exceeded 48% last month.
Slower than forecast economic activity in the third quarter could reinforce growing expectations of a rate cut in December.
In a Reuters poll, the economy was forecast to have expanded 2.6% in the quarter due to slower domestic demand. Full-year growth is seen at 3% based on the poll’s median, compared to the government’s 3.5% forecast.
Services-related activity pulled overall GDP lower in the third quarter, while construction and financial services remained elevated on an annual basis, the data showed.
Annual growth in the second quarter was revised down to 2.4% from 2.5%.
Turkey’s trend GDP growth has been between 4%-5% in recent years. The rate has cooled throughout 2024 and economists expect this to continue through year end.
The contraction from previous quarters “suggests that policymakers’ efforts to weaken demand and tame high inflation are taking effect,” said Nicholas Farr at Capital Economics.
The government predicts overall GDP growth of 4% next year as part of its campaign to end years of soaring inflation and adjust the composition of economic growth to more sustainable settings.
The central bank said separately on Friday that tight financial conditions have helped rebalance domestic demand.
(Reporting by Burcu Karakas, Canan Sevgili, Nevzat Devranoglu and Tuvan Gumrukcu; editing by Jonathan Spicer, Ros Russell and Mark Heinrich)
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