Turkey: Activity loses notable momentum in Q1; worse to come in Q2
May 29, 2020
GDP growth slowed to 4.5% year-on-year (yoy) in the first quarter, coming in below market expectations of 5.4% growth and the 6.0% expansion tallied in the fourth quarter.
Private consumption growth slowed to 5.1% yoy in Q1 from 6.8% in Q4. Robust growth in household spending came despite restrictive measures imposed by the government in mid-March to curb the spread of Covid-19. However, private consumption growth was flattered by a favorable base effect, as expenditure contracted notably in the same quarter a year prior. Public spending increased 6.2% in Q1, which marked a one-year high (Q4: +2.7% yoy). In addition, fixed investment declined at a steeper rate of 1.4% in Q1, compared to the 0.6% contraction in the prior quarter. This marked the seventh-consecutive quarterly drop in fixed investment, likely weighed on by a deteriorating economic backdrop domestically and globally.
Exports of goods and services contracted 1.0% in Q1, marking the worst result since Q3 2016 as lockdowns hit external demand (Q4: +4.4% yoy). In addition, growth in imports of goods and services eased to 22.1% in Q4 (Q4: +29.3% yoy). Consequently, net exports weighed heavily on the economy, subtracting 4.3 percentage points.
On a seasonally-adjusted quarter-on-quarter basis, economic growth slowed to 0.6% in Q1 from Q4's 1.9% expansion. Q1's reading marked the worst since Q4 2018.
Looking ahead, the Turkish economy is forecast to enter a steep downturn this year due to Covid-19 weighing heavily on domestic and foreign demand. Exports and tourism are expected to be particularly hit by restrictive measures, which will weaken the country’s external position. While the government’s fiscal stimulus could soften the blow somewhat, a recession looks inevitable.
Author: Jan Lammersen, Economist