Menu

Search

  |   Commentary

Menu

  |   Commentary

Search

Turkish economy contracts in Q3 2018, likely to further contract mildly in Q4

The Turkish economy slipped into recession in the third quarter of this year as most observers had expected. The economy contracted 1.1 percent quarterly and is likely to further contract mildly in the next quarter, noted Commerzbank in a research report. The behaviour of key expenditure components in the third quarter were more or less consistent with expectations in the third quarter. Private consumption and fixed investment shrank sharply while imports also contracted significantly by 6.3 percent quarterly as the exchange rate collapsed.

The softer exchange rate also aided exports, which rose 4.1 percent – this combination stimulated net exports considerably. Net exports added 2.4 percentage points to the third quarter growth, while private consumption dampened it by 2.5 percentage points.

The major surprise was that government spending dropped by 2.9 percent quarterly. One might have imagined that the government loosened the fiscal strings promptly after the lira crisis; however, it now seems that the new system of governance was still being put together and responsibilities were still being finalised through much of the quarter, leading in status quo and in outright fiscal contraction.

The fiscal aspect is expected to recover strongly in the fourth quarter, stated Commerzbank. Geo-political relief and some rebound in inflation data have permitted the lira to stabilize for some time. While the economic sentiment remains low in absolute terms, it has not stopped falling.

“To be on the cautious side, we assume another mild 0.3 percentq/q GDP decline for Q4. The results of corporate sector balance sheet stress from lira depreciation have not yet fully manifested in our view, and this is likely to be a dampening factor for one more quarter at least, if not longer”, said Commerzbank.

Based on this, a sub-1 percent GDP growth is expected for 2019. Still, the Turkish economy is unlikely to collapse unless there are further prominent policy mistakes, added Commerzbank.

  • Market Data
Close

Welcome to EconoTimes

Sign up for daily updates for the most important
stories unfolding in the global economy.