Turkey’s economy shrinks 10 per cent in second quarter

Turkey’s economy contracted by 10 per cent in the second quarter (Q2) as a coronavirus lockdown brought activity to a near standstill, according to data on Monday that showed its worst year-over-year performance in a decade.

While less precipitous than expected, the drop in gross domestic product (GDP) was still historic compared to the first quarter at a seasonally and calendar-adjusted 11.0 per cent, according to the Turkish Statistical Institute. Turkey’s $770 billion economy is used to more than 5 per cent growth driven by booming construction financed by cheap foreign credit. But a 2018 currency crisis, the COVID-19 pandemic and new lira weakness has brought two sharp slumps in as many years.

Many larger economies, however, fared worse in the second quarter than Turkey and it also outpaced some peers including Mexico and Poland, whose economies shrank on a quarterly basis of over 20 per cent and over 12 per cent respectively.

The data had little impact on the lira, which was slightly weaker at 7.3400 against the dollar.

In the first quarter, Turkey’s economy grew by 4.4 per cent year-on-year, according to a slight revision from the initial figure. It was boosted by a lending spree just before the pandemic struck Turkey in March.

The financial sector stood out with 28 per cent growth in the second quarter, while the large industry and services sectors shrank 16 per cent and 25 per cent respectively.

Beginning in March, Ankara shut schools and some businesses including many factories, closed borders and adopted weekend stay-home orders. Much of the economy was reopened in June, though new virus cases have edged back up in recent weeks.

“The rest of the year will depend on the pandemic and especially the recovery of demand in private consumption,” said Tera Yatirim economist Enver Erkan. “Positive growth this year looks difficult.”

In a Reuters poll of 14 economists, the median estimate was for a 11.8 per cent year-over-year contraction in GDP, with estimates ranging from declines of 7.1 per cent to 13.1 per cent.

Reuters