Turkish GDP falls 13.8 percent, economy enters recession

The Turkish Statistics Institute, or TURKSTAT, said on Tuesday gross domestic product, or GDP, fell by 13.8 percent in the first three months of 2009, compared to the same period of last year.

 

The median estimate of 17 economists surveyed by Bloomberg was for a decline of 11.9 percent, while a Reuters poll showed an expectation of 11.6 percent contraction.

 

Analysts said both market players and the government will have to revise their yearly contraction expectations and the first quarter's figure increased the possibility of a worse economic performance in 2009 than shown during the last economic crisis in 2001.

 

"Although this is a lagging indicator, it implies that the Central Bank should not worry about inflation," said Ozgur Altug from BCG Partners, which estimates a contraction of 6.6 percent in 2009. "Therefore, the Central Bank may continue with rate cuts for longer than expected."

 

Turkey's economy has slowed rapidly in recent months as the global economic slowdown hits both foreign and domestic demand. Industrial production, a key indicator of the economic growth situation, shrank 22 percent in the first quarter.

 

Turkey’s GDP shrank 6.2 percent in the fourth quarter of 2008 and grew just 1.1 percent last year, after an average growth performance of 5.9 percent in 2002-2008.

 

UNLIKELY TO HIT YEAR-END TARGET

The government has forecast a contraction of 3.6 percent in GDP for this year, with the International Monetary Fund forecasting it would shrink 5.1 percent.

 

"It’s a very ugly number, worse even than the 2001 crisis," said Inan Demir, an economist for Finansbank AS in Istanbul who predicts the economy will contract 5.4 percent this year.

 

"It makes a revision in the government’s full-year growth forecasts even more compelling: 3.6 percent is looking very difficult now."

 

He said the first quarter was "the bottom for economic activity" and the economy has been on course for a sluggish recovery as evidenced by the gradual improvement in industrial production and capacity usage.

 

"Accordingly, we expect growth readings to improve from 2Q onwards; yet we do not expect year-on-year growth rate to turn positive before final quarter of 2009," he added.

 

Turkish Prime Minister Tayyip Erdogan earlier said he expects economic activity to pick up in the summer with the positive impact of relief packages presented by his government. Turkey had introduced tax cuts and investment incentives to tackle the negative effects of the global financial crisis.

 

FALL IN LOCOMOTIVES

According to the TURKSTAT figures, output in industry fell 17.6 percent, while the service sector shrank by 12.8 percent. "Wholesale, retail, transport and construction are among the worst-hit sectors. It looks (as though) good weather conditions failed to overcome a strong base effect in the agriculture sector," said Banu Kivci Tokali, chief economist at Finans Invest.

 

Exports fell 26 percent in the first quarter from a year earlier and carmakers such as Tofas Turk Otomobil Fabrikasi AS, Fiat’s Turkish unit, halted production because of falling orders. Motor vehicle output tumbled 59 percent from a year earlier, according to the Automotive Manufacturers’ Association.

 

The Central Bank has cut 8 percentage points from the benchmark interest rate over as many months, taking it to a record low of 8.75 percent on June 16.

 

Industrial production fell an average of 22 percent in the first three months of the year and recorded a contraction of 23.8 percent in February, the biggest since the statistics agency began releasing monthly figures in 1986.

 

The jobless rate surged to 16.1 percent in the first quarter, the highest since the measure began in 2005.