Turkey's economy grew 5.6% in 2022, pace to slow after earthquakes

But growth is expected to slow significantly to 2.8% in 2023 after earthquakes caused widespread destruction in the south of the country

Turkey's economy expanded 5.6% in 2022, official data showed on Tuesday, but growth was expected to slow significantly to 2.8% in 2023 after earthquakes this month caused widespread destruction in the south of the country.

The economy had started cooling down in the second half of 2022 with a decline in domestic and foreign demand, partly due to a slowdown in Turkey's main trading partners that hurt exports because of the war in Ukraine.

Growth stood at 3.5% in the fourth quarter of 2022, down from a revised 4% in the third quarter and 7.8% in the second quarter.

In 2022, finance and insurance activities grew 21.8%, followed by the services sector which rose 11.7%, data from the Turkish Statistical Institute showed. The only contraction was recorded in the construction sector, which shrank 8.4%, the data showed.

To counter the slowdown, the central bank cut its policy rate by 500 basis points at the end of last year and then by a further 50 basis points to 8.5% last week to support growth after the earthquakes that killed more than 50,000 in Turkey and neighbouring Syria.

Gross domestic product growth in 2023 is expected to be 2.8%, based on the median estimate in the Reuters poll. Predictions ranged from 1.2% to 3.9%.

In a poll conducted in January, before the earthquakes, the median estimate for 2023 economic growth stood at 3%.

Business groups and economists have said rebuilding could cost Turkey up to $100 billion and shave one to two percentage points off growth this year.

The two earthquakes that hit on Feb. 6 caused about $34.2 billion in direct physical damage, but total reconstruction and recovery costs facing the country could be twice as high, the World Bank said on Monday.