Turkey’s economy contracts more than 3 pct, showing signs of recession

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A client grabs US dollars banknotes at a foreign exchange office in the centre of Ankara on May 25, 2018. / AFP PHOTO / ADEM ALTAN

The Turkish economy contracted a sharper than expected 3.0 percent in the fourth quarter of 2018, its worst performance in nearly a decade and a clear sign that last year’s currency crisis has tipped it into recession, Reuters reported.

Turkey, a major emerging market once seen as a star performer by international investors, achieved growth of more than 7 percent in 2017. But last year, it was battered by a 30 percent slide in the value of the lira brought on by concerns over a US diplomatic spat and central bank independence.

The year-on-year quarterly contraction compared with a median forecast of a 2.7 percent decline in a Reuters poll, and it was the worst performance since 2009. The lira initially eased slightly after the official GDP data was published, before recovering to 5.4260 against the dollar.

The economy grew 2.6 percent in 2018 as a whole, also the weakest performance since 2009, data from the Turkish Statistics Institute (TurkStat) showed. It compares with a forecast in the poll of 2.55 percent growth.

Fourth quarter GDP shrank a seasonally and calendar-adjusted 2.4 percent from the previous quarter. The data also showed the economy had expanded 1.8 percent year-on-year in the third quarter, revised from a previously reported 1.6 percent.

The economy slowed abruptly in the second half of last year due to the lira crisis, which was caused by a rift with Washington that led to US tariffs and sanctions and worries over the central bank’s independence given pressure from President Recep Tayyip Erdogan to cut borrowing costs.

Inflation peaked at a 15-year high of more than 25 percent in October, and the central bank raised its key interest rate to 24 percent in September.

The construction sector — long a beneficiary of Turkey’s credit-fueled building boom — contracted 8.7 percent year-on-year in the fourth quarter, the data showed, coupled with a 6.4 percent industry sector contraction.

Consumption expenditures of households decreased by around 9 percent in the last quarter, showing signs of a slowdown in domestic demand that has also sharply narrowed Turkey’s current account deficit. Separately on Monday, the country’s central bank said the deficit was $813 million in January.

In 2017 Turkey’s economy expanded 7.4 percent, its strongest growth since 2013, driven by industry and construction. For 2018, the Reuters poll of 19 economists saw full-year forecasts range from economic growth of 1.8 percent to 3.5 percent.

The government, which in September cut its 2018 growth forecast to 3.8 percent from 5.5 percent, said improvement was around the corner.

“The worst is behind in terms of economic activity. The worst forecasts were not realized,” Turkish Finance Minister Berat Albayrak said on Twitter after the data were published.

He added the rebalancing process continues as expected despite the contraction, and predicted 2019 growth will be in line with the government’s forecast of 2.3 percent.

The Turkish government has taken a series of measures in a bid to boost slowing domestic demand, such as tax cuts for some consumer products including vehicles, furniture and white goods. It has also encouraged shops to offer at least 10 percent discounts.

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