Turkey economy shrinks unexpectedly in third quarter

Istanbul: Turkey’s economy unexpectedly shrank in the third quarter, led by a slump in consumption, in the most significant sign yet that July’s failed coup and the political turmoil it provoked are weighing on confidence.
It’s the first time in seven years that Turkey has announced a contraction. The lira weakened.
Gross domestic product shrank an annual 1.8 per cent in the three months starting in July, Turkey’s statistics bureau reported on Monday. The median estimate in a Bloomberg survey called for an annual expansion of 0.3 per cent.
Consumer and business confidence have fallen since the July 15 coup attempt, which ushered in a period of falling investments and political instability as the government went after perceived enemies. The crackdown has cost tens of thousands of people their jobs and drawn criticism from Western governments, even as the takeover bid gave President Recep Tayyip Erdogan more ammunition in his quest to formally widen his authorities.
Government spending
Consumer spending dropped 3.2 per cent in the third quarter from a year earlier, adding to evidence that the July 15 takeover attempt damaged business activity. Government outlays on wages, goods and services rose 23.8 per cent, limiting the impact from a decline in investments, which fell 0.6 per cent from the same period in 2015.
The statistics bureau said last week that it changed the way it calculates GDP to make it consistent with accounting changes in the rest of the world and better measure the pace of economic activity. As a result, the base year it uses to calculate GDP was changed from 1998 to 2009. The new method amplified the annual contraction in the economy in the third quarter and makes it more difficult to compare with past performance, according to Bora Tamer Yilmaz, an Istanbul-based economist at Ziraat Bank.
“Under the new method, growth in previous quarters is now estimated to be higher than previously thought, which might make it possible to achieve the government’s growth target of 3.2 percent this year,” Yilmaz said.
Growth in the first and second quarters of this year was revised to 4.5 per cent, from 4.7 per cent and 3.1 per cent, respectively. GDP expansion in 2015 was revised to 6.1 per cent from 4 per cent. Turkstat says it now makes an “independent” annual GDP expansion estimate, unlike in the past, when it used to take an average of four quarter changes in the economy.
The lira fell after the report and was trading 1.7 per cent lower at 3.5378 per dollar at 10:50am in Istanbul.