ANKARA, Jun 30 – Turkey\’s economy shrank by a record 13.8 percent in the first quarter of the year, official data showed Tuesday, confirming that the once-booming emerging economy is now in recession.
A drastic downturn had been anticipated, but the figure exceeded market expectations of a 12-percent plunge.
The central bank had said the contraction in the first quarter would be in double digits before the economy returns to growth in the fourth quarter and begins to recover in mid-2010.
Turkey\’s economy started to slow down last year and shrank 6.2 percent in the last quarter of 2008, its first contraction in 27 quarters. Recession is technically defined as two consecutive quarters of negative growth.
The overall growth rate of gross domestic product (GDP) in 2008 was 1.1 percent compared to 4.7 percent in 2007, 6.9 percent in 2006 and 8.4 percent in 2005.
Analysts said the fall in the first quarter would be the worst in the year and growth figures would start to improve starting from the second quarter.
"We believe first quarter was the bottom for economic activity and the economy has been on course for a sluggish recovery, as evidenced by the gradual improvement in industrial production and capacity usage," Inan Demir, chief economic at Finansbank, said in a briefing note.
Ozgur Altug, chief economist at BCG Partners, stressed that the dramatic contraction would lead both market players and the government to revise their yearly expectations.
"The government has said it expected the economy to shrink 3.6 percent this year. The first quarter GDP figures confirm that we are now headed towards a contraction that will probably exceed 5.0 percent," Altug told the NTV news channel.
Deputy Prime Minister Ali Babacan, responsible for the economy, has already said that the overall contraction in 2009 would be worse than the government\’s estimate, but has not given a figure.
The International Monetary Fund (IMF) has estimated a contraction of 5.1 percent in Turkey this year.
Ankara is currently negotiating a three-year fresh stand-by loan deal with the IMF — eagerly awaited by markets — after a 10-billion-dollar programme expired in May last year.
The talks however have been mired in delays, with Ankara accusing the Fund of making political demands.
Prime Minister Recep Tayyip Erdogan insisted earlier this month that an IMF loan is not imperative for Turkey.
But the business community says a stand-by deal will boost investor confidence in the country as it strives to weather the global economic turmoil.
IMF deputy managing director John Lipsky said earlier this month that the Turkish economy was showing signs of improving from the global crisis, but warned that pitfalls remained.
"In line with recent global developments, some hopeful signs are visible on the economic horizon," Lipsky said, underlining the banking sector\’s "strong capitalization" and "robust profits," a sharp rebound in consumer confidence and improved investor sentiment toward emerging markets.
"However, the rising fiscal deficit and weakening loan quality could — if not addressed forcefully — cloud the growth outlook, including by curtailing banks\’ ability to extend credit," he warned.