Contracting domestic demand and decreasing investments resulted in shrinkage in the first quarter of the year. Turkey, an important emerging market economy, contracted 2.6% in the first quarter after registering 2.6% growth last year and 3% decline in the last quarter of 2018.
Experts suggested that the Turkish economy would return to a trend of growth in the third quarter of this year, claiming that the economy ditched technical recession by recording quarter-based growth.
The largest contraction came in construction activity, down 10.9% year-on-year, Turkish Statistical Institute (TurkStat) data shows. Total value-added surged 2.5% in the agricultural sector, while falling 4.3% in industry and 4% in services, compared with the same quarter last year. Meanwhile, government spending jumped 7.2%, according to TurkStat data.
Turkey's gross domestic product (GDP) at current prices totaled TL 914.7 billion from January to March, the TurkStat announced Friday.
Separate data on Friday showed the foreign trade deficit narrowed 55.6% year-on-year in April to $2.98 billion, with exports rising 4.6% while imports slid 15.1%.
Halk Invest Research Director Banu Kıvci Tokalı emphasized that growth in the second quarter will be close to zero, while the Turkish economy will start to garner its previous growing performance in the third quarter.
Tokalı emphasized that the Turkish economy is officially out of technical recession since the economy started to grow ag
ain in the first quarter after a contraction in the second half of 2018, with GDP expanding a seasonally and calendar-adjusted 1.3% on quarter-on-quarter basis. The 4.8% contraction in industrial production is the primary reason for GDP shrinkage in the first quarter, Tokalı stressed. The relatively limited reduction in services has thwarted further reduction in GDP data, she said. Informatics, communication, finance, real estate and the public sector emerged as supportive sectors for economic activity.
The net contraction in domestic demand scrapped 12.1% from growth. Decreasing domestic demand was balanced by exports, which contributed 9.4%. For the last three years, net foreign demand has been balancing out net negative domestic demand.
Tokalı emphasized that net foreign demand will continue to support economic activity, while the spread between foreign and domestic demand will normalize in the upcoming period with the global economic slowdown and amelioration in domestic demand.
"The tightening of financial conditions over the past couple of months has probably resulted in a renewed downturn," Capital Economics senior EM economist Jason Tuvey told Reuters, pointing to a broad market sell-off since late March.
AA Finance Analyst and economist Haluk Bürümcekçi drew attention to the fact that the production-based GDP was dragged down by industry, construction and services. Domestic consumption and investment expenditures yielded a major contraction in expenditure-based GDP, he said, while pointing out the huge contribution of net foreign demand, bringing a record figure of 9.4%.
Speaking of near-term trends, Bürümcekçi noted that initial indicators point out that the GDP will also shrink in the second quarter of the year.
Whether the Turkish economy will see any growth this year will depend on the extent to which tight financial conditions will ease as well as the trend in foreign demand.