Turkey -- Another Emerging Economy Reports A Dismal 4Th Quarter Gross Domestic Product

Fourth quarter Turkish Gross Domestic Product, released today, declined on a seasonally adjusted basis 4.9% from the third quarter continuing the declines of 3.6% and 1.7% in the second and third quarters, respectively. For the year as a whole, GDP increased only 1.1%, the lowest annual increase since 2001.

There were two factors having a positive effect on GDP in the last three quarters of the year that were actually suggesting weakness in the economy. The decline in imports of 1.4 billion lira from 7.6.billion lira in the first quarter to 6.2 billion lira in the last quarter affected GDP positively, but it suggested weakness in consumer and business demand. The other was the increase in inventories in the first three quarters of the year, which, again, had a positive effect on GDP, but was beginning to reflect the piling up of unsold goods rather than the piling up of goods in response to vigorous demand. The major factors affecting GDP--consumption expenditures, gross fixed capital formation, exports and changes in stocks--are show in the first chart.

The magnitude of the fourth quarter decline in total GDP was largely due to a sharp decline in stocks as can be seen in the second chart which shows the changes in consumption expenditures, gross capital formation, exports, and stocks.

Inflation, in Turkey, as measured by the year to year increase in the GDP deflator rose steadily through the year and was 10.1% in the fourth quarter. In spite of the rise in inflation, the Central Bank of Turkey concluded that the weakness in the economy was more important than inflation and reduced its Policy rate--the overnight borrowing rate--from 16.25% in October to 10.50% currently.