01.Sep .2020 10:48

Turkey outpaces peers as economy shrinks 9.9% in Q2 due to COVID-19

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Turkey’s economy did better than its peers in the second quarter of the year and fared better than forecasts as the government, via its stimulus campaign, contained the damage from the coronavirus pandemic.

The country's gross domestic product (GDP) in the April-June period shrank 9.9% from a year earlier after it had grown 4.5% in the previous three months, according to Turkish Statistical Institute (TurkStat) data on Monday.

"We knew that we would feel the effects of the most catastrophic pandemic of the century that brought the world economies to a halt in the second quarter," Treasury and Finance Minister Berat Albayrak said, evaluating the data.

Contrary to the pessimistic expectations, Turkey’s GDP ratio showed a good result compared to other countries, Albayrak said on Twitter, calling the foundations of Turkey's economy "robust, dynamic and strong."

"I hope we will end the year positively with an economic model that supports its citizens," the minister said, stressing national economic targets and employment-based production. He had earlier estimated this year’s performance between a contraction of 2% and a 1% gain.

In a Reuters poll of 14 economists, the median estimate was for an 11.8% year-over-year contraction in GDP, with estimates ranging from declines of 7.1% to 13.1%.

The median of 17 forecasts in a Bloomberg survey was for a contraction of 10.7%. A group of 17 economists surveyed by Anadolu Agency (AA) had projected the economy to have narrowed 11%, with forecasts hovering between minus 7% and minus 15%.
Many larger economies, however, fared worse in the second quarter than Turkey and it also outpaced some peers including Mexico, whose economy shrank more than 17% on a quarterly basis.

Beginning in March, Ankara shut schools and some businesses including many factories, closed borders and adopted weekend stay-home orders. Much of the economy was reopened in June as most of the lockdown measures were lifted.

As the economy rebounded, industrial production grew in June for the first time since February and economic confidence increased for the fourth consecutive month in August.

Turkey's GDP at current prices amounted to TL 1.04 billion ($153.18 billion) in the April-June period, the TurkStat data showed.

The seasonally and calendar adjusted GDP with chain-linked volume index decreased by 11% compared with the previous quarter, according to the data.

In light of the activities constituting gross domestic product, TurkStat said, the value-added increased 4% in the agricultural sector year-on-year in the second quarter.

The services – wholesale and retail trade, transport, storage, accommodation and food service activities – and industry sectors' value-added went down 25% and 16.5% on a yearly basis.

The government's final consumption expenditure dropped by 0.8, while gross fixed capital formation fell 6.1% in the second quarter of 2020 compared with the same quarter of the previous year.

"Compensation of employees increased by 0.5% and net operating surplus/mixed income decreased by 2.4% in the second quarter of 2020 compared with the same quarter of the previous year," the institute noted.

The Organisation for Economic Co-operation and Development (OECD) announced last week that its 37 mainly wealthy member states had suffered an unprecedented 9.8% economic shrinkage in the second quarter of 2020.

The impact of the pandemic and lockdown measures far outstripped the 2.3% shrinkage in real GDP recorded in the first quarter of 2009, at the height of the financial crisis, the OECD said.

To offset the fallout brought on by the pandemic, Ankara in mid-March unveiled a stimulus package, while lenders also revved up lending to support citizens and businesses, postponing debt payments and reducing tax burdens in some sectors. Since then, the measures have gradually been expanded.

The Central Bank of the Republic of Turkey (CBRT) also injected liquidity and delivered a series of rate cuts.
Turkey is determined to enter 2021 by erasing the traces of the pandemic, and the country will see a "V-shaped" recovery in the GDP data, Albayrak stressed.

The minister also shared a chart that showed Turkey's GDP result fared better than several economies, including the U.S., which shrank by a record 31.7%, the U.K. by 22.8%, Spain by 22.1%, France by 19.2%, the EU by 14.1%, the G-7 by 11.9% and Japan by 10%.

Economists say that high-frequency indicators point to growth accelerating in the third quarter, adding that the economy would come out of the pandemic period with a V-shaped growth.