Analysts believe rate cuts will begin early next year as high borrowing costs stifle investment and production.
Turkey’s economy shrank 0.2% quarter-on-quarter in the period from July to September, said the Turkish Statistical Institute on Friday.
This comes after a decline of the same scale in the second quarter of the year, confirming that the economy is in recession.
Turkey recorded 2.1% year-on-year growth in the third quarter, following a reading of 2.4% in the period from April to June.
Household consumption contracted by 0.3% quarter-on-quarter and government consumption dropped by 0.4%.
Compared to the previous year, household consumption increased by 3.1% and government consumption fell by 0.9%.
“The central bank suggested at its meeting last week that it thought domestic demand was slowing, and today’s data supports this view,” said Nicholas Farr, Emerging Europe Economist at Capital Economics.
“This could raise expectations that the central bank may cut interest rates as soon as its December meeting,” he noted – although he argued this would be “jumping the gun”.
Inflation is still strong in Turkey, coming in at 48.6% year-on-year in October.
Farr predicted that interest rate cuts are likely to begin early next year.
The key rate has been held at 50% for eight consecutive months, which has dampened consumption.
Imports of goods and services also decreased 9.6% year-on-year in the third quarter, allowing Turkey to improve its trade deficit.
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