Turkey Q4 GDP shrinks 6.2 percent, ups pressure for IMF loan deal

The figures, showing the economy's first contraction in seven years and pointing to a deep recession, dealt a fresh blow to the government after it suffered its worst election result since 2002 in municipal polls on Sunday, hit by voter dissatisfaction over its handling of the economy.

The slowdown makes a deal with the International Monetary Fund more urgent and means more central bank rate cuts are possible, analysts said.

Gross domestic product contracted 6.2 percent in the fourth quarter, exceeding a Reuters poll forecast of 5.8 percent, as both domestic demand and exports crumbled. It was the first contraction since the economy shrank nearly 10 percent in the fourth quarter of 2001 due to a domestic financial crisis.

The economy grew 1.1 percent in 2008, above a forecast of 0.85 percent but down from 4.7 percent a year earlier. In the years following the 2001 crisis it had grown 7 percent annually.

Royal Bank of Scotland economist Timothy Ash said the data should reinforce the government view that urgent action is required, particularly to shore up public finances.

"The most obvious action which could be taken would be for the government to close an agreement with the IMF to at least secure budget financing needs for 2009; this would then likely provide further scope for the central bank to cut rates," he said.

Worse data to come

Turkey's financial markets shrugged off the poor data. The lira firmed to 1.6815 against the dollar from 1.6850 beforehand, while the main share index firmed 1 percent, having been unchanged before the figures.

At current prices, GDP last year amounted to 950.14 billion lira, or $563 billion based on the current exchange rate, the Turkish Statistics Institute said. Per capita GDP stood at $10,436 in the year as a whole.

The institute revised third quarter growth up to 1.2 percent from a previously reported 0.5 percent.

But economists forecast worse growth data to come.

"We will see weaker growth figures in the first quarter of 2009. Indeed we expect the economy to shrink more than 10 percent in the first quarter," said Fortis Bank economist Erkin Isik.

Business leaders have been clamouring for the government to agree a new loan deal with the International Monetary Fund to replace the $10 billion accord which expired last May. Ankara has been reluctant to agree to some fiscal reforms sought by the Fund.

However, a smaller-than-expected victory for Prime Minister Tayyip Erdogan's ruling party in weekend elections is seen boosting hopes for a near-term IMF deal.

The government has announced a series of economic stimulus packages it hopes will kick-start the economy, although analysts say the measures, such as value-added tax breaks, were too late to halt falling demand.

Analysts said Erdogan had miscalculated how much the weakening economy would play on voters, although the results also stand in sharp contrast to the backlash against governments in Eastern Europe, where their economies have been hit harder by the global crisis and some governments have fallen.