Q2 real GDP grew by +5.2% y/y and +0.9% q/q. While the headline figures still look robust, they are down from +7.3% y/y and +1.5% q/q in Q1. The demand-side details show, that expansion in consumer spending (+6.3% y/y) and fixed investment (+3.9%) slowed down markedly in Q2. And inventories shifted to a negative contribution of -1.8pp to growth in Q2 from +3pp in Q1. All this was in part offset by increased public spending (+7.2% y/y) and a positive contribution of net exports to Q2 growth (+1pp, after -4.3pp in Q1). As a result of lower domestic demand, import growth fell to just +0.3% y/y (+15.4% in Q1) while the weaker TRY helped export growth to pick up to +4.5% y/y (+0.7% in Q1).

However, as of today this is quite old data already, regarding the currency crisis that became full-blown in Q3. Monthly indicators for Q2 and advance indicators for Q3 suggest that a recession is loom­ing. Industrial production fell -1.6% m/m in May and -2% June. Real retail sales shrank -1% m/m in May and -0.3% June. These trends should have continued in Q3 due to falling domestic demand as firms are facing financing problems and consumers' purchasing power is curbed by rising inflation and the TRY depreciation. The Manufacturing PMI has been below 50 since April and came in at a 46.4 in August. We have reduced our forecasts for full-year growth to +3.3% in 2018 and +0.4% in 2019.