Turkey’s economy did better than its peers in the second quarter of the year and fared better than forecasts as the government, via its stimulus campaign, contained the damage from the coronavirus pandemic.
The country's gross domestic product (GDP) in the April-June period shrank 9.9% from a year earlier after it had grown 4.5% in the previous three months, according to Turkish Statistical Institute (TurkStat) data on Monday.
"We knew that we would feel the effects of the most catastrophic pandemic of the century that brought the world economies to a halt in the second quarter," Treasury and Finance Minister Berat Albayrak said, evaluating the data.
Contrary to the pessimistic expectations, Turkey’s GDP ratio showed a good result compared to other countries, Albayrak said on Twitter, calling the foundations of Turkey's economy "robust, dynamic and strong."
"I hope we will end the year positively with an economic model that supports its citizens," the minister said, stressing national economic targets and employment-based production. He had earlier estimated this year’s performance between a contraction of 2% and a 1% gain.
In a Reuters poll of 14 economists, the median estimate was for an 11.8% year-over-year contraction in GDP, with estimates ranging from declines of 7.1% to 13.1%.
The median of 17 forecasts in a Bloomberg survey was for a contraction of 10.7%. A group of 17 economists surveyed by Anadolu Agency (AA) had projected the economy to have narrowed 11%, with forecasts hovering between minus 7% and minus 15%.
Many larger economies, however, fared worse in the second quarter than Turkey and it also outpaced some peers including Mexico, whose economy shrank more than 17% on a quarterly basis.
Beginning in March, Ankara shut schools and some businesses including many factories, closed borders and adopted weekend stay-home orders. Much of the economy was reopened in June as most of the lockdown measures were lifted.
As the economy rebounded, industrial production grew in June for the first time since February and economic confidence increased for the fourth consecutive month in August.
Turkey's GDP at current prices amounted to TL 1.04 billion ($153.18 billion) in the April-June period, the TurkStat data showed.
The seasonally and calendar adjusted GDP with chain-linked volume index decreased by 11% compared with the previous quarter, according to the data.
In light of the activities constituting gross domestic product, TurkStat said, the value-added increased 4% in the agricultural sector year-on-year in the second quarter.
The services – wholesale and retail trade, transport, storage, accommodation and food service activities – and industry sectors' value-added went down 25% and 16.5% on a yearly basis.
The government's final consumption expenditure dropped by 0.8, while gross fixed capital formation fell 6.1% in the second quarter of 2020 compared with the same quarter of the previous year.
"Compensation of employees increased by 0.5% and net operating surplus/mixed income decreased by 2.4% in the second quarter of 2020 compared with the same quarter of the previous year," the institute noted.
The Organisation for Economic Co-operation and Development (OECD) announced last week that its 37 mainly wealthy member states had suffered an unprecedented 9.8% economic shrinkage in the second quarter of 2020.
The impact of the pandemic and lockdown measures far outstripped the 2.3% shrinkage in real GDP recorded in the first quarter of 2009, at the height of the financial crisis, the OECD said.
To offset the fallout brought on by the pandemic, Ankara in mid-March unveiled a stimulus package, while lenders also revved up lending to support citizens and businesses, postponing debt payments and reducing tax burdens in some sectors. Since then, the measures have gradually been expanded.
The Central Bank of the Republic of Turkey (CBRT) also injected liquidity and delivered a series of rate cuts.
V-shaped recovery
Turkey is determined to enter 2021 by erasing the traces of the pandemic, and the country will see a "V-shaped" recovery in the GDP data, Albayrak stressed.
The minister also shared a chart that showed Turkey's GDP result fared better than several economies, including the U.S., which shrank by a record 31.7%, the U.K. by 22.8%, Spain by 22.1%, France by 19.2%, the EU by 14.1%, the G-7 by 11.9% and Japan by 10%.
Economists say that high-frequency indicators point to growth accelerating in the third quarter, adding that the economy would come out of the pandemic period with a V-shaped growth.
"When we consider the outlook for the coming period, the first signals indicate that national income growth will recover significantly in the third quarter of 2020," said Anadolu Agency (AA) finance analyst and economist Haluk Bürümcekçi.
"Current signals suggest that the momentum captured in June, along with the removal of the lockdown measures, may reflect positively on the growth data as of the third quarter. There are signs that external demand is strengthening, but service sectors, especially tourism, are not showing a similar recovery," Bürümcekçi told AA.
Spinn Consulting co-founder and economist Özlem Derici Şengül said that limited data on the second half of the year has been published so far but noted that survey data such as the Real Sector Confidence Index (RSCI) and Purchasing Managers’ Index (PMI) indicated that the economy was in rapid recovery and even returning to pre-pandemic levels.
The RSCI rose by 5.5 points to 106.2 points in August compared with 100.7 points in July, according to CBRT data.
A score above 100 shows an optimistic outlook on economic activity on the part of manufacturers, while a score below 100 signals pessimistic predictions for future developments.
The country’s economic confidence index surged 4.4% month-on-month, hitting 85.9 in August, up from 82.2 in July the official data showed.
On the other hand, the headline PMI rose to 56.9 in July from 53.9 in June, recording its highest reading since February 2011, according to survey data from the Istanbul Chamber of Industry (ISO) and IHS Markit.
The economists in the AA survey also predicted that Turkey’s annual GDP in 2020 would narrow 1.8% on average – the highest at a decline of 3.8%, the lowest at a decline of 0.5%.
The median estimate of 14 economists in the Reuters survey was for a contraction of 1.9% in 2020, with predictions ranged between declines of 1% and 3.8%. The country's GDP expanded 4.5% in the first quarter of this year and 0.9% in 2019.
"The rest of the year will depend on the pandemic (and) especially the recovery of demand in private consumption," said Tera Yatırım economist Enver Erkan. "Positive growth this year looks difficult."
Before the onset of the coronavirus crisis, the economy was expected to grow 5% in 2020 as laid out in the country's new economic program announced last September.