Real GDP grew by a seasonally adjusted +1.3% q/q in Q1, following three consecutive quarters of decline. Yet, in y/y terms GDP shrank again by -2.6% in Q1, after -3% in Q4. Consumer spending (-4.7% y/y), fixed investment (-13%) and inventories (-8.8pp) continued to nosedive, still heavily impacted by the currency crisis (the average TRY per USD rate in Q1 was down -41% y/y). Imports dropped by -28.8% y/y in line with domestic demand while exports rose by +9.5% as firms gained competitiveness due to the sharp TRY depreciation. Strong public spending expansion (+7.2% y/y) ahead of the March local elections mitigated the overall economic decline in Q1, however, we do not expect that pace to continue for the rest of the year. Meanwhile, the political and financial market turmoil in the aftermath of the local elections (see WERO 9 May 2019) has led to a renewed drop in sentiment. In May, the manufacturing PMI fell to a four-month low of 45.3 points and Turkstat’s Consumer Confidence Index plunged to an all-time low of 55.3 points, suggesting ongoing economic contraction in Q2. For 2019 as a whole, we forecast real GDP to decline by -0.9%.
