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ISTANBUL: Turkey’s economy grew by a more than expected 3.8% in the second quarter due to strong household spending, data showed on Thursday, but activity should show through year end as election-related stimulus fades and big rate hikes weigh.

Gross domestic product (GDP) expanded 3.5% from the previous quarter on a seasonally and calendar-adjusted basis, also outstripping forecasts, Turkish Statistical Institute data showed.

Household expenditure rose 15.6% annually and imports of goods and services jumped 20.3%, driven in part by a currency crash in June and a rebound in inflation that stoked consumption. Exports dropped by 9.0% in the same period.

Growth was also supported by fiscal stimulus ahead of elections in May, in which President Tayyip Erdogan extended his rule into a third decade.

Until the election, Turkey’s central bank had long slashed interest rates as Erdogan prioritized growth, exports and investment over bringing reining in inflation.

Cheap borrowing costs also supported economic activity in the second quarter. But growth was expected to slow in the rest of the year after the central bank began tightening policy in June after a broader U-turn toward more orthodoxy.

It has raised the policy rate by 1,650 basis points to 25% so far. Inflation stood at 47.83% in July and is expected to top 55% in August.

In a Reuters poll, the economy was forecast to have expanded 3.5% annually in the second quarter, and it pointed to a slowdown in coming months.

Growth in the first quarter was revised down to 3.9% from 4.0%, the official data showed.

Economic activity in the first quarter was affected by massive earthquakes that devastated the country’s southeast, killing more than 50,000. Reconstruction efforts are expected to cost more than $100 billion.

Turkey’s economy bounced back strongly from the COVID-19 pandemic and grew 5.6% in 2022, extending its hot streak on strong domestic demand and exports. That was despite a slowdown in growth for its main trading partners due to the war in Ukraine, which hurt exports in the second half of the year.

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