Real GDP grew by +7.3% y/y in Q4, taking full-year 2017 growth to +7.4%. The sharp acceleration from +3.2% in 2016 was in part a result of base effects since 2016 output was disrupted by the failed coup attempt in July, but the main drivers were strong wage increases in 2016 (+30%) and 2017 (+12%) as well as substantial pro-cyclical fiscal stimulus, which boosted domestic demand in 2017. Consumer spending rose +6.1%, public spending +5%, fixed investment +7.3% and inventories added +0.8pp to growth in 2017. External trade activity was dynamic as well, with real exports rising +12% (supported by the weakened TRY) and imports +10.3% so that the contribution of net exports to full-year growth was marginal (+0.1pp). Noteworthy, while export expansion peaked in Q3 2017 and has since softened somewhat, imports have continued to gain momentum until early 2018. We forecast GDP growth to slow down to +4.6% in 2018, as a result of a neutral impact of inventories this year, an expected negative impact of net exports and the absence of base effects. However, the balance of risks to the forecast is more on the downside, as Turkey is a vulnerable EM in the event of an external shock.
