Turkey economic contraction eases to 1.5 percent in second quarter

Turkey’s economy shrank at a slower pace in the second quarter of 2019 after the government introduced a swathe of measures to offset the effects of a currency crisis and exports rose.

The contraction in the April to June period eased to an annual 1.5 percent from 2.4 percent in the first quarter. The decline was led by gross fixed capital formation, which slumped by 23 percent, according to data published by the Turkish Statistical Institute on Monday. Household consumption dropped 1.1 percent, while government final consumption expenditure rose by 3.3 percent.

The economy was expected to contract by 2 percent, according to the median estimate of 18 economists in a Reuters survey published last week. The size of Turkey's economy in dollar terms fell to $722 billion from $753 billion in the first quarter, the official figures showed.

Turkey’s government has drawn on emergency funds from the central bank to fund spending, introduced tax cuts and sanctioned a flood of cheap lending from state-run banks to help revive economic growth. The lira dropped to a record low last August, sparking a six-month long recession and a surge in non-performing loans and bankruptcies.

"For full year, hard to see growth," Tim Ash, senior emerging markets strategist at BlueBay Asset Management in London, said in comments published on Twitter.

The economy grew 1.2 percent on a quarterly basis following a 1.3 percent expansion in the first quarter, the data showed.

The lira was trading up 0.3 percent at 5.81 per dollar in late morning trading in Istanbul, little changed from earlier in the day. The currency has weakened almost 10 percent this year after losing 28 percent of its value last year.

The government is calling on banks to lower interest rates to support the economy. Turkish President Recep Tayyip Erdoğan sacked and replaced the central bank's governor in July after he failed to reduce borrowing costs. Later the same month, the bank cut rates by 425 basis points to 19.75 percent. Inflation in Turkey accelerated to 16.7 percent in July, but is expected to slow by the end of the year as consumer demand remains depressed.