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bne October 2018 Southeast Europe I 47
Turkey entering a steep recession
Will Conroy in Prague
Latest Turkish activity data suggest that the plunge in the lira since May and the associated sharp tightening of financial conditions has tipped Turkey’s economy into a steep recession, Capital Economics has concluded.
In an August 29 note, Jason Tuvey, senior emerging markets economist at the macroeconomic research company, said: “Overall, there’s no getting away from the fact that the Turkish economy is experiencing a deep downturn. While
sinking 4.33% d/d to 6.7144 against the dollar by around 15:05 local time, taking its loss in the week to date to beyond 10%. The day’s low of 6.7999 was recorded shortly before. At the start of the year, the TRY stood at 3.79 to the USD, while in 2014 a dollar only bought two lira. The currency’s all-time low of 7.24 occurred in early August.
The failure of the government bring forward any more measures to reassure investors it is credibly fighting to prevent the currency meltdown turning into
up in inflation in recent months – the headline rate hit a 15-year high of 15.8% y/y in July. The latest signs show that higher inflation, coupled with a severe tightening of financial conditions,
is filtering through into an abrupt slowdown in economic growth.
“Indeed, the hard activity data paint a grim picture of the economy even before the lira’s leg down this month. In 3m/3m terms, which aligns with the quarter- on-quarter figures from the national accounts, the latest industrial production data point to industry contracting by 0.7% q/q over Q2 as a whole, compared with growth of 1.8% q/q in Q1.
“Low-profile data and survey evidence suggest that things have only got worse in Q3. Figures released earlier today showed that imports contracted by 9.4% y/y in July, a sign that domestic demand has weakened sharply.”
Plumbing record lows
Meanwhile, confidence in the con- struction, retail and services sector has plumbed record lows. Vehicle sales con- tracted by more than 30% y/y in June and July and Turkstat’s economic confi-
“The economy is likely to contract by 2-4% y/y in Q4 of this year”
we expect GDP growth of 3.0% over this year as a whole, this will entirely reflect a strong start to the year. The economy is likely to contract by 2-4% y/y in Q4 of this year and in the first half of 2019.”
By mid-afternoon, the Turkish lira (TRY) was recording its fourth straight day of losses since Turkey returned to work from its week-long public holiday,
a debt and liquidity crisis appears to be a big factor in the latest phase of devaluation.
Further looking at the hit to economic growth Turkey is taking, Tuvey said: “Things are only likely to get worse and our GDP growth forecasts lie well below the consensus... Earlier falls in the lira had resulted in a sharp pick-
Industrial Production & Industry Value-Added
Confidence is at a record low in Turkey's economi- cally vital construction sector (Pictured: Apartment buildings under construction near the southern Turkish city of Adana).
Sources: CEIC, Thomson Reuters, Capital Economics
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