Turkey’s economy shrank by an annual 9.9 percent in the second quarter as the COVID-19 outbreak pummelled industrial activity and exports, according to official data published on Monday.
But the contraction was less than economists expected. Surveys conducted by Reuters, Bloomberg and the state-run Anadolu news agency had predicted a decline in output of between 10.7 percent and 11.8 percent.
Turkey’s government has worked to keep the economy running after the coronavirus hit in mid-March. The central bank slashed interest rates and then kept them at steady at below the rate of inflation, while state-run banks embarked on a lending spree to help support economic activity.
Treasury and Finance Minister Berat Albayrak depicted the growth data as a victory for Turkey, saying the economy had contracted at a slower pace than many developed countries.
“We knew that we would feel the effects of the pandemic, which has been the worst disaster in a century and brought the global economy to a standstill,” Albayrak, who is the son-in-law of President Recep Tayyip Erdoğan, said in a statement on Twitter. “But we have done well when you compare our growth rates with the rest of the globe. The Turkish economy is stable, dynamic and strong.”
He published a graph showing Turkey faring the best among several countries, highlighting a slump in annual output in the United States, Britain and the European Union of 31.7 percent, 22.7 percent and 14.1 percent, respectively. The U.S. economy contracted by 9.1 percent annually and by 31.7 percent quarterly in the three months to June, according to the White House.
The government’s efforts to spare Turks from the worst effects of the pandemic have come at a cost. The lira hit a record low of 7.41 per dollar in August – the currency has weakened almost 20 percent this year – as concerns for economic stability intensified among investors and local deposit holders.
The central bank has kept the benchmark lending rate steady at 8.25 percent since May even as inflation accelerated to 11.8 percent. The rate had stood at 24 percent in July last year. The negative real borrowing costs have stimulated demand for imports, widening the country’s current account deficit. Meanwhile, the central bank has spent tens of billions of dollars of its foreign currency reserves propping up the lira.
Albayrak said the government now expected a so-called ‘V-shaped’ economic recovery.
The government has also kept spending elevated. So-called government final consumption expenditure contracted by 0.8 percent on an annual basis in the second quarter, while spending by households slid by 8.6 percent. Fixed capital formation fell by 6.1 percent.
Economic output in Turkey, now worth $743 billion, contracted by 11 percent compared with the three months to March on a seasonally adjusted basis, according to the official figures.
Imports decreased by 6.3 percent annually in the second quarter on a chain-linked volume basis, while exports slumped by 35 percent.
The lira fell less than 0.1 percent to 7.33 per dollar on Monday.
(Updates with U.S. growth in the sixth paragraph.)