TURKEY ENTERS FIRST RECESSION IN DECADE
GDP shrinks seasonally adjusted 2.4pc last quarter from previous 3 months
TURKEY fell into its first recession in a decade, dealing a blow to President Recep Tayyip Erdogan as the country heads towards bellwether municipal elections this month.
Gross domestic product (GDP) shrank a seasonally adjusted 2.4 per cent last quarter from the previous three months, when it declined a revised 1.6 per cent, according to data released yesterday.
That matched the median estimate of economists in a Bloomberg survey. From a year earlier, GDP dropped three per cent.
Driven by Erdogan’s push for growth at all costs and his pressure on the central bank to keep interest rates low, capital poured into Turkey during an era of record monetary stimulus around the world. But an almost uninterrupted expansion that lifted the economy by an average of nearly seven per cent each quarter since late 2009 has fizzled out following a currency crash, policy missteps and an unprecedented diplomatic rift with the United States.
“This is an indictment of Erdonomics and a direct consequence of a monetary policy last year conducted in the interests of short-term political expediency rather than economic pragmatism,” said Julian Rimmer at Investec Bank Plc in London.
For investors, the worry is that Turkey will face a long slog to recovery as the torrent of foreign capital dries up while households and companies begin paying down debts.
Private consumption plunged by an annual 8.9 per cent last quarter, with Turkey’s GDP per capita falling to US$9,632 (RM39,386) from a little over US$10,000 in 2017. In the full year, the economy grew 2.6 per cent.
Despite the downturn, Treasury and Finance Minister Berat Albayrak said the worst was now behind Turkey and the economy was on track for a rapid recovery.
Rising exports and tourism income would be the key drivers for growth, he said on Twitter.
The lira is the third-worst performer in emerging markets this year with a loss of about three per cent against the US dollar.
And as the central bank holds rates high to stabilise the lira and keep inflation in check, the engine of Turkey’s economy is misfiring. Real banking credit shrank by 7.2 per cent on a quarterly basis in the last three months of last year.
“Unlike Turkey’s past V-shaped recoveries, there’s the significant risk that the recovery will be much slower this time round,” said Inan Demir, an economist at Nomura International Plc in London. “The entire Turkish economy may be facing deleveraging pressures.”