According to Bloomberg, analysts expected a decline of 10.7 percent. However, according to seasonally adjusted working-day adjusted data, GDP fell by 11% compared to the previous three months, the highest since 1998.
The Turkish economy, which amounts to about $ 743 billion, or 16.4 trillion crowns, performed better than many other countries in the group of young markets. This is partly due to a combination of interest rate cuts, fiscal spending and government pressure to lend. US investment bank Goldman Sachs also noted that the restrictions Ankara imposed in March to prevent the spread of covid-19 were stricter than in the rest of the region, which includes Central and Eastern Europe, the Middle East and North Africa.
The decline in the second quarter was mostly due to lower household consumption, which fell by 8.6 percent year on year. Exports fell by 35.3 percent and imports by 6.3 percent. Gross fixed capital formation, a measure of corporate investment that has not been increasing in the country since mid-2018, fell 6.1 percent.
The Turkish government has introduced a package of support measures worth 240 billion Turkish lira to help businesses and consumers, while state-owned banks have increased lending. At the same time, the central bank bought government bonds to get new money into the economy, and also cut interest rates several times, including an emergency cut of one percentage point in March.
After the release of coronavirus restrictions at the end of the second quarter, there were signs of an economic upswing. Industrial production rose in June for the first time since February, and economic confidence has improved in the last four months.
However, the disadvantages of the government’s efforts to revive the economy also began to manifest themselves. Along with the further decline in the lira, inflationary pressures reappeared and the central bank had to resort to a so-called secret tightening of monetary policy, raising financing costs without directly raising interest rates.
The Turkish currency has fallen nineteen percent against the dollar this year. In the third quarter, its performance against the dollar is the worst compared to other currencies in developing countries.
However, stimulus measures are unlikely to protect the economy from one of the deepest year-round declines in history. The International Monetary Fund estimates that the country’s economy could shrink by five percent. Turkish Finance Minister Berat Albayrak is more optimistic, according to him this year’s performance will range from a decline of two percent to growth of one percent. Tera Securities economist Enver Erkan added that leading indicators confirm that the economy is in the phase of rebounding from the bottom.