Turkey’s GDP took an official hit of 9.9% y/y in the coronavirus-scarred second quarter beating the expectations of most analysts who anticipated that it would fare a percentage point or two worse.

Analysts sought to explain the better-than-expected performance by noting the big campaign of stimulus that the government stepped up to fight the deleterious effects of the pandemic, but the more sceptical analysts and opposition politicians, who for the past couple of years have been questioning the veracity of the official data that comes out of the Turkish Statistical Insititute (TUIK)—it has changed methodologies and has been subject to substantial staff changes—will be once more crunching the data components to look for inconsistencies.

The contraction in GDP followed a gain of 4.5% in the first quarter, a robust figure that partly derived from the Erdogan administration’s decision to go for another wave of cheap credit, despite the fact that it was such policies that caused the August 2018 currency crisis that brought on last year’s Turkish recession.

The second-quarter GDP shock was more severe in the seasonally and working day-adjusted figures. They showed a 11% q/q decline, the worst contraction seen in Turkey since 1998.

Turkish Finance Minister Berat Albayrak—who has forecast between 2% contraction and 1% growth for Turkey in 2020 compared to the 5% and 3,9% predictions of the IMF and Fitch Ratings, respectively—said on Twitter that the GDP data was good compared with other countries and that Turkey was determined to wipe out the coronavirus impacts going into 2021.

No full lockdown

Turkey’s economic performance may have been helped by the fact it chose not to go into full national lockdown as the virus outbreak got a grip on the country, opting for selective lockdowns instead. On the other hand, its international tourism industry has suffered an even worse collapse than was being anticipated in the spring. Added to that the cheap credit policies have put substantially more pressure on the Turkish lira, down by around a fifth against the dollar this year, and threatening to spiral to a level where Turkey would again be facing a balance of payments crisis.

“The outbreak of Covid-19 and the associated lockdown measures delivered an economic blow that was partially softened by an increase in credit provision. The cost was a destabilization of the currency, forcing the central bank to effectively hike interest rates this month,” Ziad Daoud, chief emerging markets economist at Bloomberg Economics, said of the GDP readout.

Timothy Ash at BlueBay Asset Management said on Twitter that the GDP picture “shows growth durability in Turkey and impact of credit impulse which has finally brought FX depreciation”.

Robin Brooks at the International Institute of Finance (IIF) tweeted: “Turkey's GDP fell 9.9% y/y, despite the biggest credit impulse ever in Q2 [red in graph below]. The credit impulse in Q3 is fading [orange], so full year 2020 growth now looks like it could be closer to -4% vs our earlier expectation of -2%.”
 

Source, Robin Brooks, IIF.

“The rest of the year will depend on the pandemic [and] especially the recovery of demand in private consumption,” Tera Yatirim economist Enver Erkan was quoted as saying by Reuters. “Positive growth this year looks difficult.”

The Q2 contraction was driven by a slump in household consumption. It fell 8.6% from a year earlier. Exports fell 35.3% on an annual basis, after edging up 0.3% in the previous quarter. Imports were down 6.3% following a 21.9% jump in the preceding three months.

Gross fixed capital formation—a measure of investment by businesses that hasn’t grown in Turkey since mid-2018—decreased by 6.1% y.y.