Turkey’s economy entered its first recession in a decade, official data showed on Monday, just weeks before President Recep Tayyip Erdogan’s government faces local elections where growth and inflation will be key issues for voters.
Economic output contracted by 2.4 percent in the final three months of the year compared to the third quarter on a seasonally and calendar-adjusted basis, the Turkish Statistics Institute (TUIK) said.
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 U.S. 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.
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-fuelled 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 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 realised,” Turkish Finance Minister Berat Albayrak said on Twitter after the data was 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.