(Bloomberg) -- Turkey’s $1.1 trillion economy probably eked out growth again, avoiding a contraction during a two-quarter stretch when the central bank delivered the bulk of its massive interest-rate hikes.

The pivot toward tighter monetary policy since June has put restraints on consumption that accounts for more than half of gross domestic product. With a sharp deceleration in lending and quarterly retail sales growth barely above zero, the goal is to engineer a slowdown in inflation swollen from an era of cheap money.

Officials in charge of the policy revamp are so far pulling off a soft landing, with GDP growth in the fourth quarter forecast at 0.3% when adjusted for working days and seasonal changes, unchanged from the prior three months. A minority of forecasters including Goldman Sachs Group Inc. predicted a slight contraction.

The loss of economic momentum was more apparent on an annual basis, likely resulting in a GDP gain of 3.5% — down from 5.9% in the third quarter — according to the median estimate in another Bloomberg survey of analysts. The Turkish statistics agency will publish the figures around 10 a.m. local time on Thursday.

As the economy hobbles along, consumer spending is still the main driver of growth thanks to strong auto sales and a pickup in credit card borrowing, which will only cool off from the second quarter, according to Okan Ertem, senior economist at Turk Ekonomi Bankasi AS.

A muted outlook doesn’t mean the central bank won’t consider further rate hikes on top of a cumulative 36.5 percentage points of increases through January. Newly installed Governor Fatih Karahan already signaled more tightening could be warranted should domestic demand take off after wage increases in Turkey. 

What Bloomberg Economics Says..

“The impact of the strong policy flip will be slower growth in the medium term, but our new Turkey GDP nowcast model suggests the pass-through from restrictive policy to activity may have already begun at the end of last year.”

—Andrej Sokol and Selva Bahar Baziki. Click here to read more.

While the economy is shifting into lower gear, the resilience of consumer spending may present a challenge for Karahan as he looks to bring inflation to 36% by the end of the year, roughly half the peak level it’s expected to reach in the coming months.

A model developed by Selva Demiralp together with fellow researchers at Koc University showed the likelihood of recession is now at 10%, compared with a probability close to 20% a quarter earlier. 

“Preliminary indicators in the first quarter suggest a re-acceleration in the economy,” Demiralp said. “I don’t think that additional tightening steps will pose a recession risk in the short term.”

Still Strong

Economists at Turkiye Garanti Bankasi A.S. said their big data indicators “signal that consumption is not decelerating much further since November,” according to a report this month. “Domestic demand remains stronger than supply, posing risks on both inflation and the current account deficit.”

A quarterly contraction in industrial production during the final three months of last year contrasts with a slight expansion in retail sales. It’s a pick-up attributed in part to a recent spike in credit card spending, as consumers brought forward their purchases in anticipation of higher wages ahead of local elections in March.

Under Karahan’s predecessor, the central bank capped the maximum interest lenders could charge on credit cards, despite lifting the policy rate.

“While we expect activity to recover in the first quarter given the elections at end-March and the wage hikes, we think growth will remain weak overall,” Goldman Sachs economists including Clemens Grafe said in a note. 

--With assistance from Joel Rinneby.

(Updates with economist quote in ninth paragraph.)

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