Turkey: Economy records sharpest contraction since Q1 2009 in the second quarter
The economy contracted 9.9% on an annual basis in the second quarter, contrasting the first quarter’s 4.4% increase and marking the sharpest downturn since Q1 2009. The economy—which had hitherto been on a fragile recovery path since the country’s currency crisis two years ago—was severely derailed by the global health crisis and associated containment measures, although the contraction due to the pandemic was less severe than the double-digit rate expected by market analysts.
The downturn was broad-based, with private consumption, public spending, fixed investment and exports all contracting. Household spending contracted 8.6% year-on-year in Q2, swinging from a 4.5% expansion in Q1. This came on the back of strict measures implemented to curb the spread of the virus, such as full-scale lockdowns on weekends and national holidays in April and May, which severely limited economic activity. Government consumption dropped at the sharpest pace since Q2 2017, contracting 0.8% (Q1: +3.2% yoy). Fixed investment declined at a steeper pace of 6.1% in Q2, down from the 0.3% contraction logged in the previous quarter.
Exports of goods and services nosedived 35.3% in Q2 (Q1: +4.8% yoy) as lockdowns and restrictions abroad hampered external demand. In addition, imports of goods and services deteriorated, contracting 6.3% in Q2 (Q1: +21.9% yoy), marking the first decline since Q2 2019.
On a seasonally-adjusted quarter-on-quarter basis, economic activity contracted 11.0% in Q2, down from the previous period’s 0.1% fall.
The Turkish economy is forecast to enter a steep downturn this year due to the Covid-19 pandemic weighing heavily on domestic and foreign demand. Exports and tourism are expected to be hit particularly hard by restrictive measures, which will weaken the country’s external position. However, the government’s fiscal stimulus could soften the blow somewhat.