Turkey‘s economy fell into its first recession in a decade at the end of last year, official data has shown, as the country heads towards key local elections at the end of the month.
Gross domestic product (GDP) in the fourth quarter fell by a seasonally adjusted 2.4 percent compared with the previous three months, the Turkish Statistics Institute said on Monday. The drop followed a contraction of 1.6 percent in the third quarter.
Two consecutive quarter-on-quarter contractions in economic output is widely considered to be the definition of a recession.
Despite the downturn, which was expected by economists and analysts, Turkish Finance Minister Berat Albayrak said, “The worst is behind, in terms of economic activity”.
“The worst forecasts were not realised,” he wrote on Twitter after the data was published.
Last year, the economy was battered by a 30 percent slide in the value of the lira brought on by concerns over a diplomatic spat with the United States and central bank independence.
The country is holding local elections on March 31, with growth and inflation expected to be key issues for voters.
Turkish President Recep Tayyip Erdogan, who has been in power since 2003 first as prime minister and then as president, has often boasted of the country’s strong growth during his time in office.
Overall, growth came in at 2.6 percent for 2018 overall, but that was still much lower than the 7.4 percent recorded in 2017, a turbulent period following a failed coup the previous year and a number of attacks.
Inflation has also remained high. It struck a 15-year peak in October at 25.24 percent before falling below 20 percent in February, with food prices hit particularly hard.
Erdogan’s government has sought to curb consumer prices, especially for products consumed every day in Turkish households.
Last month, Turkish authorities set up their own vegetable stands in a bid to force markets to lower food prices.
The government, which in September cut its 2018 growth forecast to 3.8 percent from 5.5 percent, said improvement was around the corner.
Fadi Hakura, a Turkey specialist at Chatham House, said the decline was to be expected.
“The Turkish economy was being fueled by an unsustainable lending boom. Consumers were being told to buy goods, purchase white goods, buy real-estate, invest in the stock market etc. But this wasn’t sustainable and the economy had to re-adjust and correct itself to a much lower growth rate.
“It’s like taking an Audi car and trying to make it hit the speeds of a Ferrari. You can play with the engine, spike the fuel, but in the end the engine of the Audi will burn out because it can’t perform at fast speeds for sustained periods”.
Albayrak, the finance minister, said the rebalancing process continues as expected despite the contraction, and predicted 2019 growth will be in line with the government’s forecast of 2.3 percent.
However, Hakura, the Turkey specialist, said that it could take “a long time” for the economy to achieve growth rates.
“The private sector is in debt of around $220 billion and it will have to pay this back eventually. Also, the private consumer is heavily indebted and they need a period of adjustment to bring their debt levels down.
“At a period when the global economy is also witnessing a slow-down, it will take Turkey a long time to achieve modest growth rates and bring the debt levels down to a sustainable level”.
The last time Turkey entered a recession was in 2009 after the global economic crisis hit foreign and domestic demand.