Economy shrinks 6.2 pct, first fall since ’01

Bloomberg

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Gross domestic product fell 6.2 percent from a year earlier, compared with a revised 1.2 percent expansion in the previous three months, the statistics office said on its Web site yesterday. The economy was expected to shrink 5.4 percent, according to the median estimate of 14 economists surveyed by Bloomberg.

The ruling Justice and Development Party, or AKP, won municipal elections at the weekend with a reduced majority. The global crisis has sparked the first economic contraction since his party came to office in 2002, driving the jobless rate to the highest in at least four years and fueling calls for him to agree on new lending with the IMF.

"The election clearly showed that the economy is costing the AKP votes and the contraction most likely worsened in the first quarter," said Hakan Aklar, an economist for AK Yatırım in Istanbul. "The only way out is to encourage domestic demand, and for that the government needs IMF help and a better macro-economic plan."

The economy expanded 1.1 percent in 2008, the agency said, bringing GDP per head to about $10,400 in the European Union membership candidate of 72 million. That rate of growth compares with an annual average of almost 7 percent achieved in the first six years of Erdoğan’s government.

"This is going to be the first in a string of negative figures, the first quarter will be worse, perhaps more than 9 percent and the poor performance will prevail through to the third quarter at least," said İnan Demir, an economist at Finansbank in Istanbul. "It’s clear that domestic demand is collapsing and only public expenditure prevented a worse figure."
Turkey and the IMF broke off talks on a loan accord in January amid disputes over spending cuts and tax policy. The government reached its budget deficit forecast for the entire year in the first two months and is now under pressure to draft a revised spending plan to win IMF help.

Government spending in the fourth quarter grew an annual 6.1 percent while household consumption shrank 4.6 percent, the statistics agency said yesterday.

The state expenditures came as "pork-barreling got into full swing ahead of local elections," Tim Ash, head of emerging-market economics in London at Royal Bank of Scotland Group, wrote in a note to investors. The figures "should reinforce opinion in the government that urgent action is required, particularly to shore up public finances."

Public sector investment rose 15.9 percent in the quarter compared with a contraction on the private sector side of 23.5 percent, the statistics agency said.

The present budget forecasts 4 percent growth in 2009, while the IMF sees a 1.5 percent contraction. Tax revenue has fallen as exports and consumer spending tumble. Industrial production fell an average of 12.6 percent in the fourth quarter and slumped 21.3 percent in January, the biggest contraction since the statistics agency began releasing monthly figures in 1986.