Turkey rejigs GDP calculations as output falls for first time since 2009

On paper at least, 79 million Turks got a near 20 per cent boost to their average standard of living on Monday when the government rejigged GDP calculations, a change unlikely to stem frustration about an economy now in contraction.

Turkey, which restated its gross domestic product (GDP) data to meet the standards of the European Union it aims to join, also said third quarter output fell a bigger-than-expected 1.8 per cent year-on-year, the first decline in seven years.

Once one of the world’s most promising emerging markets, Turkey has been hit by security fears after a series of bombings, the most recent on Saturday, and a failed coup in July. Authorities have since detained, jailed or dismissed more than 100,000 people in a crackdown that has worried investors and sent the lira currency to a record low.

“These revisions make some of Turkey’s macroeconomic variables look healthier,” William Jackson of Capital Economics in London said in e-mailed comments. “But these don’t change anything on the ground: the lira has been one of the most vulnerable (emerging market) currencies to shocks and the economy still has a productivity problem.”

The Turkish Statistical Institute said that 2015 GDP stood at $861 billion, from $720 billion before the revision – adding $141 billion to the size of the economy virtually overnight. Per capita income, often used as a proxy for standard of living, was estimated at $11,014 from $9,257 previously.

That boost in paper wealth may mean little to Turks who have seen their buying power eroded by the lira’s double-digit decline this year. However, it may come in handy for President Tayyip Erdogan as he campaigns for an executive presidential system, which is expected to go to a referendum by May.

ECONOMIC CREDENTIALS

Erdogan and the AK Party he founded have long relied on their successful stewardship of the economy – including years of rapid growth, new jobs and vast spending on airports, hospitals and housing – to win voter loyalty.

While that reputation could be threatened by recent economic weakness, the rejigged GDP numbers are undeniably positive for the AK Party. Analysts at BBVA noting that growth over the previous 17 years now averages 5.1 per cent, rather than 3.9 per cent.

The 1.8 per cent decline in third-quarter GDP far outstripped the 0.5 per cent drop forecast in a Reuters poll, which did not take into account the revisions. The economy weakened as a double-digit jump in public consumption failed to offset a decline in private domestic demand, the data showed.

Still, analysts remain worried about the weakness in the lira, as Erdogan’s drive for lower borrowing costs gives the central bank little room to hike.

“The lira has been in freefall since the end of September, the central bank’s rate hikes have proved woefully ineffective and, perhaps most worryingly, the economy is now contracting sharply, fuelling populist and nationalist sentiment and making it very difficult for the central bank to raise rates,” said Nicholas Spiro, of Lauressa Advisory in London.