Turkey enters recession with 13.8% GDP fall

Turkey's economy shrank a record 13.8 per cent in the first quarter, data showed yesterday, exceeding forecasts and backing rate-cut expectations as the economy tumbles into its first recession since 2001.

The scale of the contraction, the largest quarterly fall on record, was likely to revive calls by business leaders and financial markets for Turkey to finalise a loan accord with the International Monetary Fund to boost the ailing economy.

The European Union candidate posted average growth of about six per cent in the years since a 2001 financial crisis, but the current global woes have hammered exports and domestic activity.

"Now market players will have to revise their annual contraction expectations even lower. The government expects 3.6 per cent contraction, but this figure confirms that we will probably head towards a contraction estimate exceeding five per cent," said Ozgur Altug, Chief Economist, BGC Partners.

"Although this is a lagging indicator it implies that the central bank should not worry about the inflation. Therefore, the central bank may continue with rate cuts for longer than expected."

Turkish interest rates are at historic lows after the central bank cut the borrowing rate, currently at 8.75 per cent, by 800 basis points since last November to shore up the economy.

The 13.8 per cent year-on-year contraction in first quarter gross domestic product, announced by the Turkish Statistics Institute, exceeded a Reuters poll forecast of 11.6 per cent.

GDP shrank 6.2 per cent in the fourth quarter and grew just 1.1 per cent last year as a whole.

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