The Turkish economy shrank sharply year on year for the second straight quarter in early 2019, laying bare the impact of a punishing currency crisis and soaring inflation and interest rates against a tense political backdrop.
The major emerging market economy contracted 2.6% in thefirst quarter after a 3% percent decline in the previous three months, rockedby a fall of more than a third in the value of the lira since the end of 2017.
A burst of government spending before local elections on March 31 helped contain the slump, though a subsequent further selloff in the lira and worsening sentiment could drag on gross domestic product (GDP) again toward the middle of 2019.
"The tightening of financial conditions over the pastcouple of months has probably resulted in a renewed downturn," saidCapital Economics senior EM economist Jason Tuvey, pointing to a broad marketsell-off since late March.
"This reinforces our view that the recovery will beslow and bumpy."
Last year's currency crisis, brought on by concerns over adiplomatic row with Washington and doubts about the independence of the centralbank, ended years of a construction-fuelled boom driven by cheap foreigncapital and characterised by growth rates above 5 percent.
Inflation shot up as the central bank hiked borrowingcosts to support the ailing lira.
The lira has come under renewed pressure in recent monthsas investors fretted about the threat of new U.S. sanctions, uncertainty overlocal election results, declining central bank reserves and a trend of Turksramping up foreign holdings.
The lira firmed to 5.85 against the dollar from 5.8825 after Friday's Statistical Institute data, which compared with a Reuters poll forecast for a first quarter shrinkage of 2.5%
