Turkey’s economy suffered its deepest downturn on record at the peak of this year’s coronavirus crisis, according to data that underlined the pain caused by lockdown measures on key sectors.
Gross domestic product shrank 11 per cent in the period from April to June this year compared with the first quarter of the year — a contraction slightly less severe than economists surveyed by Reuters had expected but the largest decline in a series published by the Turkish Statistical Institute dating back to 1998. This follows a 0.1 per cent contraction in the first quarter, according to revised data.
On an annualised basis, the GDP shrank 9.9 per cent. The Turkish government has said it expects a full-year slump of about 1 to 2 per cent this year. Many international forecasters expect it to be far deeper.
Yet the Turkish finance minister, Berat Albayrak, highlighted statistics showing that the slump was less bad than those suffered by many developed economies. “Contrary to the pessimistic predictions, our GDP rate was good compared to the rest of the world,” he wrote on Twitter. “The foundations of Turkey’s economy are robust; its dynamics are strong.”
Turkish authorities sought to soften the economic damage caused by the pandemic by accelerating a credit stimulus that had begun even before the country recorded its first official cases of Covid-19 in early March.
Yet while the surge in lending offered a cushion for businesses and households that suffered a loss of income, it has also contributed to the destabilisation of the lira, which hit a series of record lows against the dollar in August. Turkey, which is heavily reliant on foreign financing, has long been forced to perform a difficult balancing act between financial stability and economic growth.
In the second quarter the worst-affected sectors were manufacturing, where activity shrank by more than 18 per cent from the first quarter, and services, which contracted by 25 per cent. Exports also took a severe hit, falling 35 per cent in the period.
Enver Erkan, an economist at the Istanbul-based Terra Investment, said activity was likely to have rebounded in the third quarter after the lifting of lockdown measures that began on June 1.
“We are seeing the positive impact of a growing return to work and the accelerated business activities that are part of the economic normalisation process,” he wrote in a note to clients.
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“Leading indicators confirm that the economy is in the recovery phase after reaching the bottom.”
He warned, however, that currency volatility was likely to force the central bank to hike interest rates, which he said could cause the recovery to “lose momentum” by the end of the year.
While the central bank is under pressure from President Recep Tayyip Erdogan to avoid officially raising borrowing costs, it has already adopted a series of measures that amount to a backdoor rate hike.
The average cost of funding provided to the country’s lenders rose to 10 per cent at the end of last week, compared with a low point of 7.3 per cent in mid-July.