Real GDP grew by a seasonally adjusted +1.2% q/q in Q2 2019, after +1.6% in Q1, which followed two quarters of q/q decline in H2 2018. Yet, in y/y terms GDP shrank for the third consecutive quarter, albeit by a smaller than expected -1.5% in Q2, after -2.4% in Q1 and -2.8% in Q4 2018. Consumer spending
(-1.1% y/y), fixed investment (-22.8%) and inventories (-2.2pp) continued to contribute negatively to growth in Q2, still impacted by the currency crisis (the average TRY per USD rate in Q2 was down -34% y/y) as well as the political and financial market turmoil in the aftermath of the local elections held at the end of March. Imports dropped by -16.9% y/y in Q2 in line with domestic demand while exports rose by +8.1% as firms gained competitiveness due to the sharp TRY depreciation. As expected, public spending expansion moderated to +3.3% y/y in Q2, after it had been boosted to +6.6% by election-related spending in Q1. Meanwhile, advanced indicators such as retail sales, industrial production and the manufacturing PMI suggest that the recession has bottomed out. We forecast full-year GDP to decline by -0.2% in 2019 and to expand by about +2.3% in 2020. Note that currency risk is not off the agenda: After just losing -3.6% vs. the USD from the start of 2019 to 14 August, the TRY lost -5.7% in the second half of August alone, amid rising global trade tensions and the resurging Argentina crisis.