A market trader handles a 20 lira banknote on her food stall in Istanbul, Turkey, on Tuesday, Nov. 21, 2017. Investors looking at Turkey are nearly unanimous in their view of the central bank’s latest moves to try and prop up the lira: Not enough. Photographer: Kostas Tsironis/Bloomberg
Output increased by 1.2 per cent in Turkey on a seasonally adjusted basis in the three months to the end of June © Bloomberg

Turkey’s economy grew at a slower rate in the second quarter of 2019 than in the previous three months, according to official figures, but it beat analysts’ predictions, shaking off concerns that the country could be heading for a double-dip recession.

Output increased by 1.2 per cent on a seasonally adjusted basis in the three months to the end of June, the Turkish Statistical Institute said on Monday — a slightly slower pace than the previous quarter’s revised rate of 1.6 per cent. Analysts polled by Bloomberg had predicted an expansion of just 0.4 per cent.

Year on year, the economy was 1.5 per cent smaller than the same quarter in 2018 — a less severe shrinkage than the 2 per cent that analysts polled by Reuters had expected.

Before the gross domestic product release was published, many economists had warned that the country was likely to struggle to emerge from the sharp growth slowdown that followed last year’s dramatic fall in the Turkish lira, when it lost almost 30 per cent of its value against the dollar. 

A surge in government spending and bank lending — aimed at boosting the economy ahead of important local elections — lifted the country out of recession in the first part of the year but analysts warned that the end of this stimulus was likely to take its toll on growth in the second quarter. 

But Monday’s data showed that the economy outperformed these expectations, driven by household consumption, fiscal stimulus and net exports.

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Nora Neuteboom, an emerging markets economist at the Dutch bank ABN Amro, said that the data were “much better than we expected — and much better than the consensus as well”.

She said: “A lot of experts, including me, thought it would be a W-shaped recession, and that growth would fall back in the second or third quarter of this year. That seems to have been avoided.”

Some analysts were bemused by the data. Murat Unur and Clemens Grafe of the investment bank Goldman Sachs said they found the bounce in household spending “puzzling” because it was “not reflected in higher frequency consumer data” nor in imports of consumption goods.

One economist at a major bank, who asked not to be named, expressed surprise at the latest GDP figures, given that other data showed a slowdown in loan growth, a spike in unemployment and a dramatic shrinkage in the country’s previously large current account deficit.

“I really don’t know why Turkey is experiencing such a bad labour market or such a marked improvement in the external balance if the output loss is so small,” the person said.

The Turkish Statistical Institute did not respond to a request for comment.

Even after the better than expected data, many economists still believe that Turkey’s economy will face challenges in the period ahead. Investment fell 7.4 per cent on a quarterly basis between March and June.

Meanwhile, Turkey’s corporate sector is grappling with a heavy debt burden and banks are reluctant to lend.

“The worst fears are not playing out,” said Kubilay Ozturk, an economist at Deutsche Bank. “But the great recovery is not happening either. It’s like a very slow kind of recovery because not everyone is convinced about whether the [recent] confidence shock and exchange rate shock is over.”

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