Turkey’s GDP Relapse for First Time After 7 Years

Turkey’s third-quarter GDP has shrunk 1.8 per cent — its first year on year decline since 2009 — confirming a deterioration in the country’s consumption-driven economy as its currency falls, inflation remains stubbornly high and citizens pull back on spending.

Gross domestic product in July through September shrunk by 1.8% annually, sinking deeper into negative territory than a 0.4% drop forecast by economists survey and reversing Turkey’s resilient growth record since its latest decline in the third quarter of 2009.

Household consumption was down 3.2 percent. And though overall imports rose, the export value of goods and services also declined. The Turkish lira has been notably impacted this year, losing about 20 percent of its value compared with the dollar. Since the economy is heavily dependent on imports, this will make materials and goods from abroad more expensive.

The Turkish lira has lost nearly a fifth of its value against the dollar this year, as the country has struggled with rising security threats. Suicide bombings by Kurdish insurgents and Islamic State, as well as a months long diplomatic rift with Russia, destroyed tourism revenue -- a key economic driver.

“Our economy grew by 2.2 percent in the first nine months of the year. A visible slow-down in global trade, a decline capital flow into emerging markets and the ongoing geopolitical tensions had an impact on our growth in the third quarter,” Deputy Prime Minister Mehmet Şimşek said Dec. 12 in a written statement.

He also noted that the July 15 coup attempt and several terror attacks put the economy under pressure.

“We have taken the required measures to make this contraction short-lived and we will continue to take such steps,” Şimşek said, adding that reforms would continue to be considered.

In November, the central bank raised its interest rates for the first time in almost three years.

The latest GDP figures will also increase pressure on the central bank to cut rates, a regular demand by President Recep Tayyip Erdogan.

This month, Mr. Erdogan called on Turks to convert their foreign-currency savings in Turkish lira or gold to support the local currency as a patriotic duty. The poor economic performance may hit support for Mr Erdogan’s constitutional referendum — he has, until recently, delivered consistent growth, accompanied by wage increases and massive infrastructural improvements during his 14 years in power.

Prime Minister Binali Yildirim last week announced measures such as extending some $70 billion in credit lines to small and midsize businesses, tax cuts and state subsidies to help stimulate job growth and boost economic activity.

Yet most analysts cautioned that the government measures appear to be short-term remedies. And with looming Fed action roiling global financial markets, most economists see more headwinds.