Source: Türkiye İş Bankası

For original report including graphics and numeric values, please see the attached PDF file below.

GDP 2020 Q1

First quarter GDP growth came in below expectations.
Following the recovery trend in the second half of last year, Turkish economy continued to expand in the first quarter of 2020 albeit losing some speed. The sharply lower performance in economic activity during the last two weeks of March, when restrictive measures were started to be introduced due to coronavirus pandemic, was behind a lower-than-expected growth figure. According to the chain volume index, in the first quarter of 2020, Turkish economy expanded by 4.5% yoy. Market expectations were around 5.5% for this period. Seasonally and calendar adjusted figures also showed that Turkish economy decelerated in the first quarter and grew by 0.6% qoq. As of the first quarter, annualized GDP in Turkey rose to 4.4 trillion TRY at current prices. In this period, annualized GDP in USD terms became 758 billion USD.

Consumption expenditures boosted growth.
Consumption expenditures added 4 pps to the annual GDP growth in 2020-Q1. 3 pps of this contribution came from private consumption expenditures while 0.9 pps came from public spending. The breakdown of household consumption expenditures showed that services expenditures made the largest contribution to growth in this period while this was followed by durable goods consumption expenditures. In the first quarter, change in stocks also played an important role in growth performance by contributing 5.3 pps to annual growth figure.

Net export dragged down the growth.
In line with the rise in imports due to the recovery in economic activity since the second half of 2019, net exports continued to lower the growth in the first quarter. Import volume, which limited the growth by 5.8 pps in the last quarter of 2019, dragged down the growth by 4.1 pps in the first quarter of 2020. In this period, export volume too made a negative contribution to growth for the first time since the third quarter of 2016. In this period, the fall in exports in real terms was limited with 1% reducing growth by 0.2 pp.

Downward trend in investment expenditures continued.
Investment expenditures fell for the seventh quarter in a row in the first quarter of 2020. Having fallen by 0.6% yoy in the previous quarter, investment expenditures contracted by 1.4% yoy in the first quarter of this year. In this period, investment expenditures dragged down the growth by 0.4 pp. Construction investments continued to be the main factor pushing down overall investment expenditures. Construction investments, which have a share of 50% in total investment expenditures at current prices, fell by 10.2% yoy in real terms. On the other hand, machinery and equipment investments, which have a share of 40% in total investment expenditures at current prices, rose by 8.4% yoy in real terms. Machinery and equipment investments had also recorded a strong increase in 2019 Q4.

GDP figures by production approach…
As data by production approach revealed, all the main sub-sectors except construction provided a boost to the GDP growth in the first quarter of 2020. In this period, services sector accounted for the largest contribution to growth by 2.2 pps. Industrial sector made its highest contribution since the first quarter of 2018 with 1.3 pps. The construction sector, however, pushed the growth down for the seventh consecutive quarter by limiting it by 0.1 pp.

Expectations…
A lower-than-expected growth in the first quarter supported pessimistic expectations about the impact of Covid-19 for the second quarter. Against this backdrop, the annual drop in GDP in the second quarter is expected to reach double digit rates. In the second half of the year, on the other hand, we anticipate that economic activity will recover along with the measures taken to support the economy and the recent normalization steps. Despite adverse external demand conditions, the decline in commodity prices, particularly oil, signals that the risks on net export performance may be relatively balanced. Gradual easing of restrictive measures around the world and the uncertainty regarding the course of the pandemic will continue to be important factors that may affect economic activity in Turkey in the period ahead.

GDP 2020 Q2

Turkish economy contracted by 9.9% yoy in the 2nd quarter of 2020.
In the 2nd quarter of 2020, Turkish economy contracted by 9.9% yoy, the lowest level since the first quarter of 2009, due to the sharp loss in economic activity led by taken restrictive measures against Covid-19 pandemic. Markets were expecting Turkish economy to shrink by double digits during this period. According to the statement made by TURKSTAT, the growth figures for the previous periods were revised parallel to the updates made in the statistics regarding foreign trade, international service trade and balance of payments. In line with that, the growth figures in 2019 Q4 and 2020 Q1 were revised from 6% to 6.4% and from 4.5% to 4.4%, respectively. Turkish economy contracted by 3.1% in the first half of 2020 compared to the same period of last year.
Turkish economy, which had contracted by 0.1% qoq in the first quarter of 2020 according to the seasonal and calendar adjusted data, shrank by 11% qoq in the 2nd quarter and entered technical recession.

Turkey’s GDP came in at 742.9 billion USD.
Turkey’s annual GDP as of the 2nd quarter of 2020 was realized as 742.9 billion USD. The said amount was 760.8 billion USD at the end of 2019. In addition to the contraction in the economy, the depreciation of the TRY was also effective in the decline in annual GDP in USD terms.

Decline in main expenditure groups…
According to the expenditures approach, all groups except stock changes, which include statistical errors as well, contracted annually on real terms in the 2nd quarter of the year. The widespread measures taken against the virus pandemic during this period, especially in April and in the first half of May, led a rapid decline in private consumption expenditures. While the said item lowered the GDP by 5.1 points, the decrease in public consumption expenditures limited the growth by 0.1 points.
The strong pressure on the export volume due to the global contraction in economic activity led exports to limit GDP by 9 points in the 2nd quarter of the year. On the other hand, with the effect of the decrease in import volume, net exports limited the growth by 7.8 points in total.

Investment expenditures continued to decline.
Investment expenditures, which gave signs of recovery in the last quarter of 2019, resumed to decline again this year with the effect of the pandemic. Thus, according to the chain-linked volume index, investment expenditures limited GDP by 1.5 points in the 2nd quarter. Analyzing sub-categories of investment expenditures reveals that construction investments, which have been decreasing continuously since the 3rd quarter of 2018, contracted by 16.4% in this period. On the other hand, machinery and equipment investments continued to increase on an annual basis (4.7%), albeit losing momentum.

Rapid decline in the services sector…
Due to the measures taken against the virus pandemic, the services sector dragged the growth down by 6.7 points in the 2nd quarter of the year. During this period, disruptions in production caused the industrial sector to push down growth by 3.3 points. The agricultural sector, on the other hand, contributed 0.2 points to growth in the 2nd quarter of 2020. In addition, the 27.8% annual increase in financial and insurance activities confirmed that the economy was supported by the credit channel against the pandemic in the 2nd quarter of the year.

Expectations…
The limiting effect of the coronavirus pandemic on economic activity was clearly felt in the 2nd quarter of the year. Despite the accelerated normalization steps in June, economic activity recorded the fastest decline since the global crisis, especially with losses recorded in April and May. During this period measures such as curfews, travel restrictions and social distance put pressure on the services sector, especially on tourism. Along with the normalization steps, the leading indicators for the 3rd quarter point to a recovery trend in economic activity, but the continuing increase in the number of cases worldwide creates uncertainty for the upcoming period.