The economy’s tough spot was further highlighted by feeble business and consumer credit growth in Q1, as well as ongoing weakness in the important construction sector, chiefly due to the cheap lira. Moreover, second-quarter data suggests that the economy remains in a predicament: Consumer credit growth was still weak in April; operating conditions in the manufacturing sector deteriorated in the same month; and consumers remained dejected through May. Against this backdrop, domestic and international political pressure has risen in recent weeks due to the annulment of the Istanbul mayoral election result and the two-week ultimatum given to Turkey by the U.S. on 23 May to cancel the purchase of Russian missiles.
Turkey Economic Growth
The economy will likely contract this year due to collapsing domestic demand induced by high inflation, rising unemployment and a weak lira. However, the economy should begin to recover towards the end of the year as inflation softens, providing room for monetary policy easing. Lingering geopolitical tensions and currency volatility cloud the outlook, however. FocusEconomics Consensus Forecast panelists expect the economy to shrink 1.3% in 2019, which is down 0.3 percentage points from last month’s forecast, and to expand 2.7% in 2020.