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POLL-Turkish GDP shrank 2.5% in Q1, to contract 0.2% in 2019

Turkey's economy shrank 2.5 percent in the first quarter, a Reuters poll forecast on Thursday, reinforcing the country's slide into recession due to a tumbling lira, a domestic demand slowdown and tightening financing conditions.

By Nevzat Devranoglu

ANKARA, May 23 (Reuters) - Turkey's economy shrank 2.5 percent in the first quarter, a Reuters poll forecast on Thursday, reinforcing the country's slide into recession due to a tumbling lira, a domestic demand slowdown and tightening financing conditions.

In a survey of 19 institutions, gross domestic product (GDP) was predicted to contract 0.2% this year as a whole, with economists seeing downward risks to forecasts, which ranged between growth of 2.3% and a contraction of 2.6%.

The lira TRYTOM=D3 has lost 38% of its value against the dollar since the end of 2017, helping to push annual inflation up to a 15-year peak of more than 25 percent in October. Inflation remains near 20 percent.

The economy contracted 3% in the final quarter of 2018, its worst performance in nearly a decade, bringing full-year growth down to 2.6%. In 2017, GDP expanded 7.4%.

Economist Haluk Burumcekci of Burumcekci Consulting said the most important indicator for growth was industrial production, which shrank 5.7% in the first quarter after a 7.3% contraction in the fourth quarter.

He forecast GDP would shrink 2.6% in the first quarter but predicted an expansion when measured quarter-on-quarter.

"We expect a sharper contraction in domestic demand and investments than the general GDP contraction," he said. "We understand that net exports will make a significant contribution to growth in the first quarter."

A Reuters poll last month forecast the economy will shrink 0.3% this year. Last September, the government set its forecast for 2019 growth at 2.3%, down from a previous 5.5%.

Others are more bearish.

The International Monetary Fund sees the economy shrinking 2.5% this year while the Organisation for Economic Cooperation and Development this week predicted a 2.6% contraction.

Economists in the poll said there were downward risks to their full-year growth forecasts given weakness in financial markets and uncertainty generated by the re-run of the March Istanbul election which is scheduled for June 23.

Recent indicators also pointed to a downturn in sentiment.

The Purchasing Managers' Index (PMI) for manufacturing fell to 46.8 in April from 47.2 in March. Consumer confidence tumbled to 55.3 points in May from 63.5 points in April, hitting the lowest level since the data was first published in 2004.

A slowdown in global growth was also a downward risk, but this was countered by domestic steps to boost economic activity such as an extension in tax cuts and other stimulus measures, Burumcekci said.

The Turkish Statistical Institute will publish the Turkish economic growth data on May 31 at 0700 GMT.

(Additional reporting by Ezgi Erkoyun; Writing by Daren Butler; Editing by Jonathan Spicer)

((daren.butler@tr.com; +90-212-350 7053; Reuters Messaging: daren.butler.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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