Turkey’s seasonally and calendar-adjusted GDP grew by 1.3% q/q in Q1 following the contractions seen in the previous three quarters, statistical institute TUIK said on May 31.
On a quarter-on-quarter basis, two consecutive quarters of contraction equates to a technical recession. The Q1 data suggest Turkey exited from its technical recession—but the initial indicators are not promising for Q2.
Even if the assessment is that pre-election stimuli—arranged in advance of the June 23 Istanbul revote—and foreign tourist flows will support economic activity in the second quarter, there is as yet no real light at the end of Turkey’s tunnel of economic woe.
“This bounce doesn't reflect an underlying recovery, but a big credit expansion in Q1 that in March alone pumped 1.5% GDP in new loans into the economy. And of course that credit expansion destabilized the BoP and weakened the Lira,” Robin Brooks of the Institute of International Finance (IIF) observed on Twitter.
“Turkey’s economy returned to growth in Q1 but the tightening of financial conditions over the past couple of months has probably resulted in a renewed downturn,” Jason Tuvey of Capital Economics said in a research note.
The latest picture reinforced Capital’s view that the recovery will be slow and bumpy. It remains comfortable with its below-consensus forecast for GDP to contract by 1.8% over the course of 2019.
A notable key aspect of the released data is that it relates how TUIK revised its Q2 2018 GDP calculation down to a contraction of 0.1% q/q from the 0.05% q/q growth shown by its previous GDP release in March.
As a result, the revised data confirms that Turkey was in a technical recession throughout the second half of last year—as bneIntellinews repeatedly reported.
There are too many question marks over the data compilations being put out by the TUIK. Its official releases should only be analysed with a suspicious eye.
On a year-on-year basis, TUIK’s data shows that the Turkish economy contracted by 2.6% y/y in Q1 after contracting 3% y/y in the last quarter of 2018.
A Reuters poll released last week forecast a Q1 GDP contraction of 2.5%.
The Q2 data possibly suggests that the period of quarterly year-on-year contractions extends to three consecutive quarters.
Surprising agricultural data
TUIK’s agricultural production data, meanwhile, has again caused surprise. The official picture shows 2.5% y/y growth in the first quarter amid booming food prices caused by collapsed production. The economic segment, however, has a limited share in overall GDP.
Industrial production contracted by 4.3% y/y in Q1 after contracting by 6.4% y/y in Q4 2018 while the debt-fuelled construction industry, the one-time growth engine of the previously booming Turkish economy, shrank by 10.9% y/y after contracting 5.6% y/y in Q3 2018 and 8.7% y/y in Q4 2018.
“The breakdown of the data revealed that, unsurprisingly, the expansion was driven by pre-election stimulus measures,” Tuvey of Capital Economics also said, adding: “The return to growth looks as though it will prove short-lived. The sell-off in Turkish financial markets over the past couple of months has caused financial conditions to tighten.”
Capital Economics has expressed doubt that government spending will continue to rise at a rapid pace. The latest survey evidence suggests that economic activity has weakened – TUIK’s Economic Confidence Index fell to a seven-month low in May.
Private consumption shrinks 4.7%
Looking at the angle of expenditure, private consumption contracted by 4.7% y/y in Q1 after contracting by 8.9% y/y in the previous quarter while government consumption grew by 7.2% in the first quarter.
Gross fixed capital formation contracted by 13% y/y in the quarter after contracting 4.7% y/y in Q3 2018 and 12.9% y/y in Q4 2018.
At current prices, the private consumption share in GDP rose to 58% in Q1 from 56% in Q4 2018, but in Q1 2018 it stood as high as 60%. The government consumption share in Q1 rose to 16.5% from 16% in Q4 2018 and 14.6% in Q1 2018.
Imports amounted to 31.7% of overall GDP in the quarter, up from 29.2% a quarter ago, suggesting the limited recovery in economic activity as usual fuelled imports.
Also begging further scrutiny are GDP data from TUIK suggesting Turkey’s exports amounted to TRY291bn at current prices and imports amounted to TRY290bn—while TUIK’s foreign trade data shows exports amounted to $42bn in the quarter and imports stood at $49bn.
One benefit of slipping further and further into authoritarianism is that the regime tends to secure a higher level of mathematics.