2023 third quarter gross domestic product (GDP) data shows that the economy continues to recover despite the contractionary monetary policy, with 5.9 percent annual growth and 0.3 percent quarterly growth.
The most important change compared to the second quarter is the shift from consumption to net exports and investments. We see a healthy national income picture in line with the Medium Term Program (MTP) targets.
When we analyze the third quarter GDP data from the expenditure side, we observe that household consumption contracted in line with monetary tightening and macroprudential measures. Household consumption, which contracted by 1.7 percent compared to the previous quarter, pulled the headline quarterly growth down by -1.3 percentage points.
On the investment side, growth continues to accelerate with post-earthquake reconstruction and infrastructure investment activities. Investments, which grew by 5.4 percent in the third quarter of 2023, contributed +1.3 percentage points to quarterly growth. What is surprising is that the third quarter investment growth is driven by machinery and equipment rather than construction.
The good news is that exports increased by 5.4 percent quarter-on-quarter (ending the series of contractions since the second quarter). On the other hand, imports continue to grow, albeit at a slower pace, by 2.3 percent. As a result, net exports added 1.3 percentage points to quarterly growth. We attribute the rise in net exports to the appreciation of the liberalized exchange rate and the households’ decision not to bring forward their future consumption as the financial repression environment has lifted.
To summarize, we are excited that the effects of the return to rational ground in economic policies after the elections are starting to be reflected in national income figures. We are heading towards a sustainable growth environment where consumption normalizes and net exports and investments increase. The data are in line with our view of a soft landing and outward rebalancing in growth. We see mixed signals in the data for the fourth quarter.
October S&P Manufacturing PMI (48.4) and MUSIAD SAMEKS manufacturing index (50.8) were weaker than September. November SAMEKS data, which is more recent, points to a recovery in the economy. The industrial sector SAMEKS data rose to 52.2, up by 1.4 points from October on the back of an increase in new orders. Production resumed its upward trend after a four-month break. For those who see the glass half full, SAMEKS data gives hope.
Before the third quarter figures, we had raised our growth forecast to 4.1 percent from 3.7 percent due to the slowdown in Europe, competition from Asia and tightening financial conditions. Following the data, we are raising our growth forecast for 2023 to 4.3 percent.