Yesterday, Turkey’s second-quarter GDP (gross domestic product) data showed an expansion of 5.2 percent year-on-year (y/y), similar to consensus (5.3 percent), but lower than the 7.3 percent y/y in the first quarter.

Household consumption increased by 6.3 percent y/y and government consumption by 7.2 percent. Furthermore, the data showed a recovery in exports (growth 4.5 percent y/y), which should get more pronounced in Q3 due to the lira depreciation making imports less attractive.

We expect GDP growth at 4.5 percent in 2018 and 2.5 percent in 2019. We still expect the Central Bank of Turkey to hike rates at its meeting on Thursday in order to restore investor confidence in its independence. Analysts expect a rate hike of up to 500 basis points.

We are waiting for more evidence that the government will allow the central bank to conduct a stabilisation policy before changing the rating on Turkish sovereign bonds.

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