The Turkish economy technically fell into recession with quarterly GDP contraction at 0.2% in the third quarter of 2024. This was similar to the second quarter. Thereby, it established two consecutive quarters of negative growth. It reported that the Turkish Statistical Institute said its economy expanded at 2.1 percent annually in the third quarter, a notch lower than the 2.4 percent recorded in the second quarter. 

This is mainly due to the slowing down in domestic demand. Household consumption has dropped by 0.3% quarter-on-quarter and government consumption by 0.4%. These are; however, quarterly declines and household consumption is up 3.1% versus the same period last year. 

Government consumption is down 0.9%. 

Economic activity has been persistently weak in the face of high interest rates, which have significantly reduced borrowing and investment. The Central Bank of Turkey has maintained the key interest rate at 50% for the last eight months to control inflation, which still stands at 48.6% year-on-year, as of October 2024. This monetary policy has, in turn, restrained consumer expenditure and thus impeded economic growth. 

Nicholas Farr, Emerging Europe Economist at Capital Economics, explained that the central bank has in its recent statements already accepted slowing down of domestic demand and current data supports this view. This, therefore has increased expectations that the central bank may cut interest rates in the coming months. According to Farr, cuts could be in the rate books even from December but would be too early to assume that the central bank might make a cut. 

Imports of goods and services decreased by 9.6% year on year in the third quarter, thus easing pressure on Turkey’s trade balance. The trade deficit improved in the period. 

Analysts are rather looking forward to subdued economic performances in Turkey unless more accommodative monetary policies are launched. High borrowing costs, even in the face of persistent inflationary pressures, would weigh down on economic activities and slow down a complete recovery within the near term.