Turkey’s economic growth slowed to 0.9 percent in the second quarter, official statistics showed on Monday, with further declines expected as the impact of the tumble in the value of the lira begins to show up in the data.
The second quarter performance was down considerably from the 1.5 percent seasonally-adjusted quarter-on-quarter growth registered in the first three months of the year.
Compared to the second quarter of 2017, the Turkish economy grew by 5.2 percent in the three months through June this year, slightly lower than the market consensus of 5.3 percent.
Second quarter growth was driven by the services, industry and construction sectors, as well as a rise in exports, the official data published by the Turkish Statistics Institute (TUIK) showed.
The data does not yet include the 20 percent plunge the value of the Turkish lira in the past month, with the currency briefly passing seven to the dollar.
The lira traded at 6.4 against the dollar on Monday after 1130 GMT, a loss of over one percent in value on the day.
ABN Amro economists last week said lira’s weakness was “not over yet as capital outflows will continue”, warning the lira could reach 8.2 against the dollar. They also forecast that Turkey could face a recession in 2019.
Meanwhile, Jason Tuvey, senior emerging markets economist at London-based Capital Economics, said Monday that “more timely figures point to a steep recession at the start” of the third quarter.
“We expect the Turkish economy to contract by 2-4 percent year-on-year in the second half of this year and in early 2019,” he added.
– ‘Economic rebalancing’ –
But Turkish Finance Minister Berat Albayrak, the son-in-law of President Recep Tayyip Erdogan, said that the data showed “economic rebalancing” had begun.
Concerns remain over the health of the Turkish economy because of high inflation and a widening current deficit as well as worries over the direction of monetary policy.
Despite these issues, the nominally independent central bank has not raised interest rates which economists fear is a result of pressure from Erdogan. He previously called rates the “mother and father of all evil”.
Inflation last week surged to a 15-year high of 17.9 percent with analysts warning it could reach over 20 percent later in the year.
But Albayrak insisted that Turkey’s priorities were a “full fight against inflation” and “sustainable” current account deficit levels.
Markets expect a rate hike on Thursday after the bank indicated it would adjust its monetary stance in a statement last week.
Inan Demir, an economist at Nomura, said it was “crucial” that the bank delivered a “substantial, orthodox hike of at least 550-600 basis points”.
The Turkish central bank’s key policy rate, the one-week repo rate, has been at 17.75 percent since early June. A hike of 550-600 basis points would take it over 23 percent.
“However, we do not have a high conviction that this will be the case,” Demir warned in a note to clients.
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