Page 19 - BNE_magazine_04_2019

bne April 2019 Companies & Markets I 19
Fallen star: First recession in Turkey for a decade
Akin Nazli in Belgrade
No longer an emerging markets star performer, Turkey has fallen into its first recession since the financial crisis a decade ago. Its seasonally and calendar-adjusted GDP contracted by 2.4% q/q in Q4, following the 1.6% q/q contrac- tion recorded in Q3, statistical institute TUIK said on March 11.
A Reuters poll released last week forecast a GDP contraction of 2.7% for Q4 and 2.55% for all of 2018.
TUIK’s data also showed that the Turkish economy contracted at a worse-than-expected 3% y/y in the final quarter of last year but grew at a slightly better-than-expected 2.6% y/y in full-year 2018.
Private consumption shrank by 8.9% y/y in Q4 while gross fixed capital formation declined by 12.9% y/y. Government consumption grew by just 0.5% y/y.
Turkey’s annual GDP at current prices declined to $784bn in 2018 from $851bn in 2017 while GDP per capita for 2018 stood at $9,632, compared to a little over $10,000 in 2017.
Au revoir to the trillion-dollar dream
The country’s dream of achieving a trillion-dollar economy has been significantly set back. And the idea that many voters will use the end-of-March local elections as a referendum on President Recep Tayyip Erdogan’s 16-year-long rule – with one key question being whether it was his unsound economic stewardship and undermining of central bank independence that led to Turkey’s credit-fuelled economy running off the rails and suffering a full-blown currency crisis – has strengthened.
Turks are especially feeling the pain because prior to the currency blowout, partly caused by deteriorating relations with the US that unnerved markets, they enjoyed an almost uninterrupted expansion that lifted the economy by an average of nearly 7% each quarter since late 2009.
The trigger for Turkey's ongoing economic woe was last summer's Turkish lira crisis. The currency lost towards a third of its value against the dollar during 2018.
“This is an indictment of Erdonomics and a direct consequence of a monetary policy in 2018 conducted in the interests
of short-term political expediency rather than economic pragmatism,” Julian Rimmer, a trader at Investec Bank in London, was quoted as saying by Bloomberg.
The slowing momentum “is just a warning signal that the Turkish economy is going down a cliff,” Nora Neuteboom, a Netherlands-based economist at ABN Amro, told Reuters.
Major election issues
Rising prices, especially for food, and high unemployment, have become major election issues, although government officials insist the worst of Turkey’s economic difficulties is over, and some analysis supports that view. Finance minister Berat Albayrak has asserted that Turkey is on track for a rapid recovery, with growing exports and tourism income to be key drivers of growth. But there is significant doubt as to whether Turkey can really manage a V-shaped recovery, with deleveraging pressures in evidence across the economy.
If the Erdogan administration survives the local elections relatively unscathed, it will know at least that it is not scheduled to face another election for another four years. And prior to the polls it has another card up its sleeve – a recession is typically technically defined as two consecutive quarters of negative growth, but Turkish economy officials have suggested that a year-over-year measure is the well-known approach
“The country’s dream of achieving a trillion-dollar economy has been significantly set back”
used in Turkey to ascertain when a recession has begun. Turks may therefore not be officially advised on whether the country is in a recession until the first-quarter GDP data is put out.
“The worst of the downturn may now have passed, the weak carry over means that we expect GDP to decline by 2.5% this year,” Jason Tuvey of Capital Economics said in a research note, noting that the Capital forecast is much gloomier than that of the consensus, and adding: “Investment dropped by 3.6% q/q in Q4. That was a better performance compared with Q3 and may reflect the easing of financial conditions over the quarter. The one crumb of comfort is that net trade provided another sizeable boost to the economy. Exports rose by a fairly solid 1.4% q/q whereas imports fell by 4.6% q/q.”
“The low-profile indicators available for the start of 2019 suggest that the downturn has passed its trough. Inflation
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