By Behiye Selin Taner and Nevzat Devranoglu
ISTANBUL/ANKARA (Reuters) – Turkey’s economy is expected to shrink in the second quarter, its third straight quarterly contraction as it grapples with the effects of recession, and a Reuters poll on Thursday also pointed to zero growth in 2019 as demand and investment slows.
The poll of 18 economists showed the economy shrinking 2% year-over-year in the second quarter, based on the median, and estimated annual growth of 0% for 2019, as last year’s currency crisis continues to weigh on the major emerging market.
Forecasts for the second quarter ranged from a 1% to 2.2% contraction. Estimates for annual GDP ranged from 1% growth to a 2% contraction, which on the whole was more optimistic than a July poll predicting the economy would contract this year.
“We expect the weak trend in investments to continue again and therefore have a bigger negative impact on GDP than in the previous quarter,” said Ozlem Bayraktar Goksen, chief economist at Tacirler Yatirim.
Turkey, the largest economy in the Middle East, has a track record of more than 5% growth. But a diplomatic dispute with the United States last year and the currency crisis that wiped out more than 30% of the currency’s value triggered a contraction of 3% in the fourth quarter.
In the first quarter of 2019, the economy contracted 2.6% year-on-year even as it returned to growth on a quarter-on-quarter basis. It may again narrowly log quarter-over-quarter growth in Q2, economists say.
Second quarter GDP growth is due to be announced on Sept. 2.
A sharper than expected fall in industrial production in June, shrinking retail sales in recent months, and limited public consumption contributed to weakness in the second quarter.
On the other hand net exports, helped by weakness in the Turkish lira, “will continue to be the biggest positive contributor to GDP,” Goksen said, predicting a 1.5% year-on-year GDP rise in the second half of the year despite risks stemming from weak credit growth.
“At this point, we hold our 2019 forecast as a 0.3% annual contraction. We think there are downward risks,” she said.
A Reuters poll of more than 40 economists in July showed the contraction in Turkey’s economy was expected to continue until the third quarter of the year, with positive growth seen in the final quarter of 2019.
At that time, economists had forecast a 1.5% contraction annually for 2019. The government’s own sharply-lowered forecast for the year envisages growth at 2.3% in 2019, and 3.5% in 2020.
Turkey’s economy last contracted on an annual basis in 2009, by 4.7%.
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