The economy is on course of slipping into a technical recession (defined as two consecutive quarters of negative q/q growth), as expected, as real GDP contracted by -1.1% q/q in Q3. The currency crisis has taken its toll on domestic demand. Consumer spending decreased by -3.9% q/q and fixed investment by -3.6% in Q3. Even public spending shrank by -2.9% q/q. The strong TRY depreciation also triggered a sharp rise in import costs and caused real imports to decline by -6.3% q/q. However, real exports benefited from the weaker TRY and grew by +4.1% q/q in Q3, so that net exports mitigated the overall decline in GDP. In y/y terms, real GDP still grew by +1.6% in Q3, but this was markedly down from an average +6.3% in H1. We expect the recession to continue and forecast full-year growth of just +0.4% in 2019. Meanwhile, the rebalancing of the external sector has continued. In October, the first monthly trade surplus in almost ten years was posted while the current account recorded its third consecutive monthly surplus, at +USD2.8bn, reducing the 12-month rolling deficit to -USD39.4bn. We forecast the annual current account deficit to narrow from -5.5% in 2017 to -3.4% in 2018 and -1.5% in 2019.
