Turkey economy shrinks for first time since 2009

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ANKARA: The Turkish economy shrank by nearly two percent in the third quarter as consumer spending and exports plunged, data showed Monday, the first year-on-year contraction since 2009.

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The Turkish Statistics Office said gross domestic product (GDP) fell 1.8 percent compared with the same period in 2015, sparking an immediate fall in the lira.

The contraction was marked by weaker consumer spending which the office said decreased by 3.2 percent in the last quarter, while exports of goods and services fell by 7.0 percent.

The release is one of the strongest signs yet that political instability in the aftermath of the July 15 coup bid is affecting consumer confidence.

But William Jackson, senior emerging markets economist at Capital Economics, said there were early signs the economy has started to recover from the third quarter slump.

“(Turkey) may even dodge a technical recession of two consecutive quarters of negative growth,” but Jackson warned in a note that Monday’s data “support our view that growth will be much weaker than most anticipate”.
This is the first set of numbers after the statistics office said last week it would change the way it calculates GDP figures in line with European Union Regulations (ESA 2010).

Thus the base year used is now changed from 1998 to 2009 and the changes mean in nominal terms, Turkey’s GDP is now larger by 20 percent, Ozgur Altug at BGC Partners said in a note.

The last time Turkey recorded negative growth was 27 quarters ago in 2009 when the country entered recession.

According to the statistics office, government expenditure also increased by 23.8 percent.

Monday’s figures come as the country’s tourism industry is under severe strain following multiple terror attacks blamed on Islamic State jihadists and Kurdish militants and after the July 15 failed coup.

In the latest attack on Saturday, twin bombings ripped through Istanbul, killing 44 people, mostly police and were later claimed by the Kurdistan Freedom Falcons (TAK), seen as a radical offshoot of the outlawed Kurdistan Workers’ Party (PKK).

After the data release, the lira hit 3.53 against the US dollar at one point from 3.48 earlier as the bad figures and continued chaos inside the country wreak havoc on the Turkish currency.

But by 1630 GMT the lira had recovered to 3.48, in line with comments by Jackson that “the lira has been one of the most vulnerable EM (emerging markets) currencies to shocks.”

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