Istanbul: A long slog awaits Turkey even if its first recession in a decade ended last quarter.
A flurry of stimulus kicked in before March elections as lending by state banks powered gains in industrial production and retail sales. An economic turnaround in Europe, the main destination for Turkish exports, also offered a bright spot.
But accelerated declines in the lira spell trouble for an economy where consumer spending accounts for an estimated two-thirds of output, threatening to cripple demand and put a strain on Turkish companies saddled with a US$315bil foreign-currency debt pile.
Besides, it’s a risk for inflation, still stuck around 20% and preventing the central bank from cutting interest rates.
A controversial rerun of Istanbul elections next month is also keeping the market on edge.
“The problem is there hasn’t been a normalisation of economic policy, and the uncertainty regarding the election is delaying any form of long-term recovery,” said Guillaume Tresca, a strategist at Credit Agricole SA in Paris.
Still, the state-driven credit push probably paid off, at least in the short term. Data due today will show the Middle East’s largest economy expanded a seasonally adjusted 1.3% in the first three months of the year after two consecutive quarters of contraction, according to the median of 10 forecasts.
Gross domestic product shrank 2.8% last quarter from a year earlier, another Bloomberg survey of economists showed.
Credit grew for the first time since August’s market rout. Lending by state banks soared 30% to 1.09 trillion liras (US$181bil) last quarter, while loans extended by private banks rose 5%Industrial production climbed a seasonally adjusted 2.1% in March from February, making for three straight months of gains.
Consumer confidence dropped in May to the lowest level since record-keeping began in 2004. The lira has lost about 7.5% against the dollar so far this quarter, the worst performer in emerging markets.
“The economy might have stopped shrinking, but there’s a risk it could dip back into recession,” said Ziad Daoud, Mideast economist. Despite the possibility of a double-dip recession, the Turkish government is sticking with its growth target of 2.3% for 2019. That remains sharply at odds with forecasts for a continued contraction by most economists. — Bloomberg