Istanbul - Turkey's economy contracted by 9.9% in the second quarter as a coronavirus lockdown brought activity to a near standstill, according to data on Monday that showed its worst year-over-year performance in a decade. While less precipitous than expected, the drop in gross domestic product (GDP) was still historic compared to the first quarter at a seasonally and calendar-adjusted 11.0%, according to the Turkish Statistical Institute. Turkey's $770 billion economy is used to more than 5% growth driven by booming construction financed by cheap foreign credit. But a 2018 currency crisis, the COVID-19 pandemic and new lira weakness has brought two sharp slumps in as many years. 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.
The data had little impact on the lira, which was slightly weaker at 7.3400 against the dollar. In the first quarter, Turkey's economy grew by 4.4% year-on-year, according to a slight revision from the initial figure. It was boosted by a lending spree just before the pandemic struck Turkey in March. The financial sector stood out with 28% growth in the second quarter, while the large industry and services sectors shrank 16% and 25% respectively. 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, though new virus cases have edged back up in recent weeks: "The rest of the year will depend on the pandemic (and) especially the recovery of demand in private consumption - said Tera Yatirim economist Enver Erkan -. Positive growth this year looks difficult." In a Reuters poll of 14 economists, the median estimate was for a 11.8% year-over-year contraction in GDP, with estimates ranging from declines of 7.1% to 13.1%.
Finance Minister Berat Albayrak, who has forecast between 2% contraction and 1% growth this year, said on Twitter the GDP data was good compared with other countries, and Turkey was determined to wipe out the coronavirus effects going into 2021. A severe hit to the key tourism sector means the economy is also expected to shrink for the full year. Turkey's economy last contracted on an annual basis in the midst of the global great recession in 2009, by 4.7%. The central bank cut rates aggressively from mid-2019 but has held policy steady the last few months as the lira dropped to record lows, threatening bigger problems for the economy.