Turkey’s GDP shrank 1.8 per cent in the third quarter from the same period a year earlier, according to the data published by the Turkish statistics bureau. That was the first year-on-year contraction since the 2009 global financial crisis.
Growth in the first and second quarters of the year was revised up to 4.5 per cent. Last year’s GDP growth was revised to 6.1 per cent from 4 per cent. The economy is expected to grow by about 3 per cent this year.
The botched military putsch against an elected government in July gave President Recep Tayyip Erdogan an opportunity to change Turkey’s political system, from the parliamentary one to the executive presidency modelled on Vladimir Putin’s Russia. A bill to change the constitution, which was written by a military government in the early 1980s, has been submitted to parliament. Mr Erdogan’s ruling Justice and Development (AK) party needs the support of the opposition nationalist party (MHP) to put a draft constitution to a national referendum.
Mr Erdogan has used emergency powers, which allow him to rule by decree, to fire or suspend more than 100,000 civil servants, close independent media outlets and seize almost 600 companies with assets valued at more than 10 billion dollars for alleged links to Fethullah Gulen, a self-exiled cleric who has been accused by Turkish authorities of orchestrating July’s failed coup. A period of political upheaval has had a negative impact on business and consumer confidence.
The third-quarter fall was driven by a decline in consumption and exports.
Consumer spending dropped 3.2 per cent from a year earlier. Exports of goods and services declined 7 per cent, while imports rose 4.3 per cent. Investment fell 0.6 per cent. Agriculture output shrank 7.7 per cent. Industrial production fell 1.4 per cent. Services contracted 8.4 per cent. Government spending jumped 23.8 per cent, but that wasn’t enough to halt a decline in GDP.
Turkey’s debt-to-GDP ratio stands at just 35 per cent and a fiscal deficit at less than 2 per cent, so the government can stimulate the flagging economy by accelerating public investment in infrastructure.
Expectations that the US Federal Reserve would raise interest rates this week for the second time since the financial crisis and Donald Trump’s infrastructure investment plans influence investors’ decisions to keep their money in American assets. The Mexican peso and the Turkish lira are the worst-performing emerging-market currencies since the election of Mr Trump as US president. Mr Erdogan has urged Turks to convert foreign currencies into liras and gold to support the local currency. He has also pressed state institutions to dump their foreign exchange holdings. Turkey is particularly vulnerable to the slide in the lira as the Turkish non-financial corporate sector has borrowed more than 200 billion dollars in foreign currencies, taking opportunities of low interest rates elsewhere.
Annual inflation dropped to 7 per cent in November from 7.16 in October, well above the central bank’s target of 5 per cent, though with a weaker lira consumer price pressure is on the rise.
Turkey’s central bank unexpectedly raised interest rates for the first time in more than two years last month to halt a currency decline, despite being under pressure from Mr Erdogan to cut borrowing costs to boost economic activity. The latest growth figures will certainly increase pressure on the central bank to cut interest rates.
